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spk04: Thank you for standing by. This is the conference operator. Welcome to the ReadyShred Capital Corp fourth 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 will be an opportunity to ask questions. To join the question queue, you will press star then one on your telephone keypad. If you need assistance during the conference calls, You may signal an operator by pressing star, then zero. I would now like to turn the conference over to Jeffrey Hesham, Chief Executive Officer. Please go ahead.
spk02: Thank you very much. Good morning, everyone. Welcome to Ray Shred's fourth quarter and year-end 2023 call. I want to thank everyone for attending today, this morning. And, of course, as usual, I'm joined by Harjeet Brar, our Chief Financial Officer. Together, we'll be reviewing the results for the fourth quarter and for the year. And, of course, as always, we'll have some time at the end for a Q&A. One thing just to remember, our financial statements, MD&A, and press release are all also located on CDAR. So for further details, please visit CDAR for those reports. I want to first start Q4 2023 was a good quarter for us. We all know that the fourth quarter seasonally is a top quarter with U.S. Thanksgiving, Christmas, holidays, and the like. However, both from a top line perspective and also from a bottom line perspective, it was a good quarter. The operations made very good strides, and everyone put their head down to do so. If you look at our organic same-store shredding revenue, it grew 10% versus the prior year same quarter. And consolidated EBITDA, excluding the paper, grew $1.3 million this where last year our EBITDA was $200, so $1.5 million in EBITDA excluding paper, and the prior year was $200,000. So a very significant uptick in the performance of the business when excluding paper. And of course, we all know, unfortunately, in 2023, paper prices came down much more than anyone would have anticipated. We are fairly close to our uh long-term average um long-term averages in around 140 to 150 dollars per ton uh and and harjeet will go through a little bit of this in more detail but you know we're sort of in that area so obviously um when we sort of look at the fourth quarter uh that significant drop in uh recycling revenue um driven by the price of paper was more than offset by the operational improvements that we saw. And so on a consolidated basis, we're still able to grow our consolidated EBITDA by 2% in the fourth quarter of 24 versus the fourth quarter of 2023. Again, despite that paper dropping in a significant way. So we were fairly pleased about that operational result and what the entire team accomplished together in the fourth quarter in particular. In 2023 and, of course, in the fourth quarter, we made serious investments in our business, and those investments are going to tee us up for the years ahead, for the many years ahead. It did impact our EBITDA, and, of course, most of those costs would have been seen in the G&A line. These investments, to name a few, would include our transferring to Microsoft Azure and implementing the first and most important components of Salesforce and the marketing automation platform that's embedded within Salesforce. We started in a very serious way working towards having a SOC 2 Type 1 report, which will then be followed up with a Type 2, so that's certification. That certification is very important. Not only will it help us secure many of our governmental shredding accounts, but it will also allow us to be a very serious player in the scanning business, as a lot of larger companies are looking for that SOC 2 certification, and most of our competitors in the digital imaging space have that certification. So that's going to put us in a positive way. So we made some very good investments. These investments will have positive effects on sales, route economics, long-term G&A costs as we scale this business. And this is what we're trying to do is make sure that when we scale this business, we can continue to deliver operating leverage in the business. And we needed to take these steps this year and into early 24 to ensure that we drive a business that can scale as we grow and reduce manual input, make it easy for our customers both inside and outside of the organization. That's what we're looking to do with these investments, and they will drive positive economic results. On the M&A side, if we look at our most recent two deals or three deals, you know, first, Prosha Baltimore, longstanding franchisee there, great, great franchisee. We were able to buy his business as he was looking to retire, him and his wife, and we thanked them for that. That allowed us to finish the job in the D.C.-Virginia-Baltimore corridor. So far to date, it's going to plan, so we're pleased about that. Simultaneously, we did an acquisition called Security Shredding in the New Jersey market. It was a tuck-in, and again, the team in New Jersey and the technology team and the DD team, due diligence team, did a great job integrating that, and that was a nice win for us. If we look at the 24, we bought MDK on January 1st. In the Michigan market, they had Shred and Scan. We had no presence in Michigan. We're now at a point where we can start to be more aggressive on marketing and sales. as we look to penetrate that whole Detroit, Lansing, Flint market, Toledo as well. We're well positioned to do that. We're going to drive that business forward for the latter part of this year. We're pleased about that. Overall, a lot was accomplished. A lot of people worked hard and the hard work led to some positive results. Speaking of positive results, I'll let Harjeet provide the good color on the quarter and on the year.
spk03: Thank you, Jeff, and thank you again for everyone who is joining on this call today. So if we sort of look at our financial results, start from the top line, you know, revenue, we grew to $16.8 million compared to $15.4 million in the fourth quarter of 2022. So that's up 9%. You look at the other lines of business, you know, uh, specifically for example, like scanning, you know, scanning sales, you know, those also did, uh, you know, go up by half a million. That is again, a smaller line of business, but, um, has done well, uh, e-waste was comparable. And, um, and if you look at, you know, the shredding revenue side, uh, shredding revenue, again, uh, total growth rate, 20% or 2.2 million, um, you know, for the quarter, if you compare it back to the prior quarter and, um, As Jeff sort of mentioned earlier, this is even in the face of softer paper prices. So very good top line growth. You look at the bottom line, that's also translated well. EBITDA, $3.1 million. That sort of translates to 17 cents per share, fully diluted basis. Cash flow side, free cash flow, $2 million for the quarter, 11 cents per share. Again, that's driven by our positive you know, strong cash flows from operations, which was both 3 million in Q4, and that's offset by 1 million in CapEx. As many of you already know, our CapEx is primarily driven by our shredding trucks. And I think with our spend, you know, we will add, you know, additional service capacity. And, you know, this will allow us to continue to support the growth of the business. If you sort of look at the full year results now, those were also positive. Free cash flow, $7 million. That compares to $6.3 million in 2022. Revenue at $65.9 million, comparing that to $57.2 in 2022. And then EBITDA slightly up at $15.4 million compared to $15.3 million in 2022. And again, that was impacted by paper, but we were able to have you know, more than offset the operational improvements, um, you know, to the business, you know, uh, with that sort of downward impact on the paper prices. So again, overall, um, you know, pleased with the results for Q4, Q4, 2023 and the full year 2023. Um, and, um, you know, I think we're well positioned, uh, to, um, sort of execute on our plan for 2024. Uh, we are definitely very excited about it and, um, With that, I will turn it over to Jeff for some closing comments.
spk02: Thank you, Harjit. Appreciate the incremental color. Again, you know what? This is one of those businesses, like all businesses, in fact, where you just got to put your head down. Work on executing every single day, the attention to detail on the operations, the attention to detail on how we allocate capital. Those are the most important things in our business. Those are the two areas that we focus in on. And the team has been doing a great job on the things they can control. And, you know, those are reflected in the numbers. And more exciting is that, you know, we're investing to improve this business going forward. And so we're very excited about 2024. And, you know, we're excited to take on some questions now. So I'll turn it back to you, Ayesha and we'll get the questions from the group.
spk04: 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. The first question comes from David Ocampo with Cormac Securities. Please go ahead.
spk00: Thanks. Good morning, everyone. Good morning. Jeff, I guess my first line of questions is around the targets that you normally set alongside your Q4 results. I was wondering if you could provide some high-level targets for the company, whether that's EBITDA growth, margin performance, or acquisitions. I think that would be helpful for us as we look to model out 2024.
spk02: Yeah, for sure. So, look, we will be publishing in the Q1 report a more fuller set of targets. The targets are going to be – and one of the reasons why we want to take a few moments on that is, number one, our view here is to convert some of the – have at least one target based around free cash flow. And now that we're larger – You know, free cash flow really is a very critical number. You know, it speaks to efficacy in collections. It speaks to capital allocation in terms of truck purchases and other capex spend. So that's going to be one that will be providing some targets. There'll be also... And that encapsulates paper too, right? And then there'll be other targets such as... Same location results with paper and without paper. Those will be very important targets that we'll be looking at for next year. Acquisitions, no doubt, those will be targets that we'll be setting up. uh, also, uh, for the following year. Um, and, um, so those are the things, those are the three areas in particular that, you know, we'll be honing in on and, and we'll be, you know, the good news of Q1, um, for us, it's not even a month away. And so we'll be, we'll be reporting those, uh, with the proper details at that time.
spk00: Okay. That sounds good. And, um, you touched a little bit on capital allocation and acquisitions. I take a look at your balance sheet today. Uh, $3 million of cash, but a $3 million contingent consideration still on the books for past acquisitions. Just curious about your ability to finance that growth as we move forward here.
spk02: Yeah. Look, I guess the good news is the company produces cash flow, so that's number one. And we've always wanted to get to the point, and I'm not sure we're quite yet there, but we're certainly getting closer. We want to always get to the point where we really could fund projects On our own, meaning without as many equity raises. The idea here is to have the right banking facilities and the right cash flow production. And we're getting with the bank, you know, we've certainly expanded our facilities. The bank has been extremely supportive of our growth programs. and we sort of look at, you know, when you look at our ratios from a debt to assets, a debt to EBITDA, sorry, yeah, a debt to EBITDA, you know, we're in a very good position there. So from a banking perspective, we've got capacity. You'll see we've expanded our debt financing facilities to include some much easier to access smaller deals line, and then, of course, we've got the typical line that's also been expanded. And then the cash production will allow us to also fund acquisition. So, you know, look, we've got a good pipeline, more independents at the moment than franchisees. And the independents do tend to be smaller. We love these smaller ones. We tuck them in. They're very They're very, very positive for the company, these little ones, as you've seen in the past. So I think, you know, we're in a good position. That doesn't mean at some point we're not going to need to raise equity, of course. You know, there will be larger acquisitions and the like. But at the moment, we're holding pretty steady, which is great. Harjeet, did I miss anything there? I want to make sure we answer David's question.
spk03: Sure. So I think, David, I just sort of add to that. I think one thing to point out is we kind of look at the business. Free cash flow for the year 2023 is was $7 million, right? So we definitely have the capacity to self-fund any contingent consideration that is owing for the coming 2024 year. You know, definitely to grow the business, you know, there's always, you know, conversations around like, hey, what is the proper sort of capital structure? Looking at, you know, funding deals, you know, what's the right LTV? You know, so we take into account those different factors. And as we continue to grow the business, definitely there's the need for the capital to get it to that sort of additional growth level. But it's something we constantly evaluate. But to Jeff's point, we are sort of well positioned where we want to be. And then we definitely have our M&A pipeline, which is pretty robust. And so I would say in summary, we're pretty comfortable where we are in terms of our capital.
spk00: Okay, that's helpful. And then just a bigger type question before I hand the line over. I mean, we take a look at your performance X paper. It did have a nice improvement, but recycling still represents close to half of your EBITDA. And just out of curiosity, is this the right level for your business? And if not, how do you guys reduce your reliance on recycling going forward?
spk02: Great question. It's a big question. So just looking at some stats, if we look at total EBITDA and look on the same corporate location basis, recycling revenue was about 35% of our EBITDA this quarter, fourth quarter versus last year, which was 67%. So obviously, paper price is coming down. That naturally will go there. And then when you improve your EBITDA operationally, we had a nice uplift there. And so how do we ensure that, you know, we continue to manage that? Look, we've always been a business that's been about the service side. So, you know, even when paper prices were, you know, sky high, we were at best, we were in around 20%. Revenue represented about 20% of our total revenue. represent 20% of our total revenue. And now, you know, it's sort of dropping closer to 10%. So we're always in that range. And obviously, the more we drive that service revenue, I think every time we've seen a high, it represents less of our revenue. And every time we've seen a low, it also, you know, it doesn't impact us as badly. If you go back to 2019, those were much tougher times for us with the paper. So So number one, making sure that our recurring scheduled revenue, we're growing it, making sure the service revenue, we're growing it. So that's number one. Number two, digital imaging, our scanning business, you can see some good growth there. We're continuing to invest in that business. That SOC 2 certification will be important in the short, medium, and long run to securing new clients. especially larger clients, and those clients can afford often the bill to digitize. So we have that. And then lastly, our ITAD business. We're sort of unraveling. We're really doing a deep dive on that business. We think that business is a good business. Um, we've just put in some new software, some new workflow software, so we can really understand the data in, in real time around, you know, what we're collecting, what the values are, you know, who we're selling it to, who the clients are. Um, you know, we, a lot of our clients are the pro shirt clients and then, um, uh, creating the playbook to replicate that business. So we're going to, you know, um, reduce our alliance on recycled paper. We're going to reduce that over time by focusing on the things that we can control and selling into those types of things. And, you know, we've started that, and that's why we've invested in a lot of technology this year because knowing your clients, particularly using Salesforce and marketing automation and knowing where they are, are very critical to us driving the operational margins versus the, you know, the, the reliance on paper. Did I get the, did I get everything you needed there, David, or do you have a follow-up on that?
spk00: Nope. That was, that was perfect. I'll, I'll hop back in the queue. Thanks, Jeff. Thanks, Archie.
spk03: Thank you, David.
spk04: Once again, if you have a question, please press star, then one. The next question comes from Nick Cochran with Acumen Capital. Please go ahead.
spk01: Hi, Jeff and Harjit. Congrats on a strong end to 2023. Thank you, Nick. Just a couple questions for me. We're kind of four months into 2024. I'm just wondering if you give any indication how the business performed year to date and maybe the monthly trends just in paper questions as well.
spk02: Rajit, you want to take that one?
spk03: Sure. So, uh, I think if you sort of look at the business, um, again, you know, 2024, um, you know, without getting into sort of too much detail here, sort of at a high level, like, um, so far, you know, things are sort of progressing, um, like we wanted to, uh, we will definitely be releasing, um, you know, Q1 results in the upcoming month, but I think, uh, overall so far, again, um, You know, again, we have our plan for the year and we're going to go out and execute it. And, you know, from a paper perspective, you know, prices for paper, they've been relatively flat compared to year end 2023. So as we sort of, again, I'm referring to 2024 here. So, so far, relatively flat. We did get a bit of an uptick in March, April. But if you kind of look at the quarter overall, they're pretty much in line with with sort of where we finished 2023. So I think, you know, that lack of volatility, I think is helpful because it helps us plan a little bit better. So again, you know, we sort of look at it, we will release results next month, but overall, again, we're on the right path.
spk01: Good. And then you highlighted the investments you've made in the business, particularly on the technology side. Can you give an indication of how much you spent in 2023 and what additional investments you're planning on doing in 2024?
spk02: Yeah, we spent a lot. Arjit, did you want to give a little bit of a range there?
spk03: Sure. So, yeah, sure, we can sort of provide a bit more context. So I think in terms of the businesses investments, Jeff spoke about them earlier. We're looking at about half a million plus in investments, at least in the G&A side. And as we sort of look ahead to 2024, that amount of investment we're going to need to do to sort of get our business to that next level is going to be definitely significantly reduced. We are going to spend a little bit on the SOC 2 Type 1 certification. So there's still a little bit of work left to be done there. But the major investments, especially on the cloud computing front, Salesforce side, you know, the good thing is, again, we've made those investments last year. Obviously, they impacted our bottom line margins. But I think we will be much better for it in 2024 and in the coming years ahead.
spk01: Good. And what's the timeline to get that SOC 2 type 1 certification and the steps to get the type 2 certifications off?
spk02: Um, yeah, so type one will be this year and type two will be 2025.
spk01: Great. And then, uh, maybe just one last question for me, just thinking forward to the, the number of trucks you're expecting to be delivered in 2024 and 2025. Harjit, I'll give that one back to you.
spk03: Sure. So as we sort of plan ahead for 2024, you'll kind of see our CapEx, uh, spend In 2023, if we look at our net capex, we're just south of $6 million. As we plan ahead for 2024, we're going to be in that range of spend. Trucks are going to be in that range of about 15 trucks. Again, this is going to be something that sometimes will change, and when we do update how much we think we're going to need to spend based on, you know, not only the performance of the business, but where we think the growth opportunities are. But if you're sort of planning it and looking ahead for 2024, you can kind of use that 6 million, just out the 6 million as sort of a gauge for what we're expecting to spend on CapEx for 2024.
spk01: Great. That's a great color. I'll pass it on. Thanks. Thank you, Nick. Thanks, Nick.
spk04: This concludes the question and answer session. I would like to turn the conference back over to Jeffrey Hesham for any closing remarks. Please go ahead.
spk02: Thank you. Appreciate everyone jumping on a call this morning. I want to thank everyone for their time this morning as well. So many investors are on this call and our board members and our employees. I want to thank all of them for the support. The team here is dedicated to being great at operations and being great at allocating capital. And we're going to continue to put our head down and work on those things and invest in the things that will drive our business forward. And we've been doing it and we've been executing it and want to thank my team for all that they've done. And we are very excited for 2024. So everyone have a great day. Appreciate your time. We'll talk soon.
spk04: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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