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spk00: Thank you for standing by. This is the conference operator. Welcome to the ReadyShred Capital Corp first quarter 2024 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 one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Jeffrey Hashim, Chief Executive Officer. Please go ahead.
spk02: Thank you very much. Appreciate it. So first of all, welcome everyone this morning to ReadyShred's Q1 2024 investor call. I want to thank everyone for joining us this morning. I'm joined by Harjeet Bharar, our Chief Financial Officer, and together we'll be reviewing the first quarter results of 2024. As usual, we'll have a Q&A session once Harjeet and I make a few remarks. I want to note, of course, that as usual, our Q1 financial statements, MD&A, and press release were disseminated yesterday. They're available on CDAR as usual. So if you're looking for those documents, they are there and have been filed. I want to first note that 2024 started off well operationally. We've continued to grow our service lines of revenue. I want to congratulate the ProShred team, operations team, sales team, marketing team, technology team, ProShred, the shredding revenue was up 12% versus the same quarter of last year, and kudos to everyone involved in bringing that together. And then, of course, the ProScan business, our digital imaging business, was up 47%. That's a big number. And so altogether, on the service side, again, we saw very good growth. Harjeet will dive a little deeper into that growth profile, but to continue to see strong double-digit growth in our service end of the business, that's something we're appreciative and, again, want to thank our teams out there that do this every single day. They work hard and don't often get the credit they're deserved. Paper pricing was closer to the 10-year average in the first quarter. I always get asked about paper prices, and you'll recall a year ago in Q1 2023, we were still fairly close to the highest levels that we'd seen in a long time. And so, of course, our recycling revenue was about $2 million in the first quarter. When you compare that back to the first quarter of 2023, that was $3.3 million. So that's a $1.3 million decline when we look at that, the quarter versus the quarter. So, obviously, the key for us is to continue to be more dependent on the service revenue, less dependent on the paper revenue. And we've been doing that. We've been doing that very well. So, organic growth has been strong, which we just spoke about. Acquisitive growth has been there and will continue to be there. Obviously, adding new customers is critical, especially our subscription service. Scheduled customers are very important. Price increases are important to the mix. Those all will drive our route density, our bottom line, and we're continuing to do that. take those actions and do those things. Uh, so when we look at EBITDA and you back out that recycling revenue, uh, Q1 2024 was 2.3 million versus 1.8 million in Q1 2023. So a half a million dollar improvement, um, which, uh, which we're very happy about. So, um, again, um, just coming back to paper for a moment, um, Again, the strategy here is if paper prices are going to continue to be low, then we've got to increase our prices. We've started that process. That process will be completed by the end of June. So we'll get a little bit of a bump in June of 2024. And of course, in Q3 of 2024, all the price increases will have taken effect and will positively impact our results. The next piece of good news is, of course, one of the things we've endeavored to do is improve our technology platform. Security is critical. It's critical to protecting what we own and have, but it's also critical to gaining new business. And our SOC 2 Type 1 certification, we're in the audit report moment, so we're just finished the last ends of our audit report. Our audit with the firm and, of course, that audit will be completed very, very shortly. And that type, we expect to get that type one very, very shortly. That's going to positively impact the scanning business for sure. And we are excited about that. So stay tuned there because that's been exciting. a year-long journey uh now coming to the first stage of conclusion uh obviously a year from now we'll get the we'll get the type two uh once we go through a full year in the new um sock environment um and then of course mdk we completed that in january so here's the good news we're in michigan uh after absorbing that business uh like any other business uh although a smaller acquisition As of right now, we're in Detroit, and that's a great new market for us. And so to be able to service another new market is great. And, of course, we all know what we like to do once we're in a market. Let's see, are there other one, two, or three truck operators in the market? So overall, I'm happy with the operational performance of the business. And let me turn it over to Harjeet, who can get a little more granular with you.
spk07: Thank you, Jeff, and thank you again for everyone who is joining us on this call today. So I guess in terms of the financial results, Jeff sort of gave a bit of a feel for them. If we look at sort of the overall top line results, so we did grow from $17 million in Q4 2022 to $17.2 million. So there's an uptick. That uptick was driven by shredding revenue. So the shredding revenue is up 12% or $1.5 million. That is sort of being partially offset, though, with lower recycling revenue. But again, something that we did anticipate, and we are comparing a quarter in Q1 2023, where paper prices were more elevated than what sort of the normal sort of long-term average is. So if we look at sort of the top line, you know, we're seeing growth there. Bottom line results, EBITDA, we landed at $4 million. Um, that works out to about 22 cents, uh, per share, uh, on a fully diluted, uh, share basis. Um, you know, so again, good margins, especially when you, when you take a look at EBITDA less net recycling, uh, considerable improvement that does show us that we're continuing to sort of improve the bottom line. Um, and then when we combine that with the fact that, Hey, um, you know, we're also looking, we're also, you know, executing on things like price increases, um, you know, focusing on sort of density scaling, uh, that that's really helped contribute to a very good bottom line, uh, and margins. Um, from a cashflow perspective, uh, free cashflow was 0.9 million, um, or about 5 cents per share. Uh, that's driven by 3.1 million in cash that we generated from operations. Uh, but that was offset obviously by CapEx. So we had 2.2 million in CapEx in Q1, 2024. Um, obviously we spend on trucks, we want to add service capacity, grow the business. But if you look at Q1 2024, part of the CapEx spend, it was driven by timing of purchases. So when we kind of look at the coming quarters in 2024, we definitely anticipate spending less on trucks compared to what we spent in Q1 2024. So you're definitely getting a bit of a front loading on the CapEx side, which is impacting the free cash flow for Q1 2024. All in all, when we look at the year, a good start to the year, but obviously we, um, you know, we're excited about the sort of the coming quarters and how we can sort of grow this business. Um, and now I'll turn it over to Jeff for any sort of last remarks or comments.
spk02: Yeah. Thanks. Thanks, Sergi. Yeah. No, appreciate, uh, I know our, our audience will appreciate a little bit more color and, and of course, uh, we'll, we'll get this opened up to Q&A in a moment, but, uh, again, want to thank, operations, marketing, sales, finance, technology, compliance, the entire team that does this every single day. It was good execution on the operations side. Everyone's looking to improve and how to get better. And, of course, Q2 and Q3 are traditionally good, strong sales and revenue quarters for us, and Q2 is not done yet. And so we're going to be pushing forward to make Q2 as successful as we possibly can. And so I think on that note, I'm sure there are questions from the audience, so we'll open it up.
spk00: 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. We will pause for a moment as callers join the queue. Our first question comes from David Ocampo of Cormark Securities. Please go ahead.
spk05: Thanks. Good morning, everyone. Good morning. Good morning, David.
spk03: So you guys have talked about the price increases that you guys are implementing in June. But I'm curious, do you expect most of this to fall down to the bottom line or will be offset by some inflationary pressures on the cost side, whether it's driver wages, et cetera? Harjeet, do you want to take that one or do you want me to take that one?
spk07: Sure. So when we take a look at the price increases, obviously we're looking at a sort of a at a clip that's a little bit higher than we typically done them. Uh, so we definitely think that, um, you know, that is an opportunity. Um, and, uh, so obviously we've already started executing on them. So come May 1st, we started sort of rolling out the price increases, uh, the residual carry over into June. And so again, you're going to start getting that full benefit in Q3. When we sort of look at it from a, from a costing perspective, um, Obviously, I think some of the headwinds with inflation and sort of the inflationary increases that we were seeing sort of, especially post-COVID, you know, those have dissipated quite a bit. And so we kind of look at that sort of run rate going forward from a sort of a cost increase perspective. It's not going to be as significant. So we do expect a good chunk of that to definitely fall to the bottom line.
spk03: You gotcha. When I look at the volume of paper processed, it was down 2% year over year, but your scheduled and unscheduled sales were up pretty nicely in the quarter. Just curious, what are the factors driving that or potentially some of the bins that you guys are collecting from customers containing fewer paper in them or are you guys potentially sitting on unprocessed paper facilities?
spk02: I can answer that one. Look, usually it's driven by just the type of purges. Are they lots of small purges? Are they larger purges? So the purge will tend to drive your tonnage. The scheduled tonnage tends to be pretty steady. So you tend to get that. So it's just really driven by those types, what types of purges are there. You also get sometimes quarters where your existing schedule clients will call in for a purge and maybe they do, maybe they don't. But generally, we've seen this in the past where you'll see a little bit of a reduction in tonnage on a quarter versus quarter basis just because of the nature and the type of purge. purges typically. Again, scheduled is up and we're not seeing much variance in the service methodology or what we're servicing or the like.
spk03: Okay, that makes a lot of sense. And then just one last one for modeling purposes. I mean, you guys are forecasting free cash flow of $9 million, so it's a pretty big yield against the current stock price and Harjit, I'm just curious what you guys are assuming for total CapEx for the year. I know you said sequentially down off the Q1, but a full number would be helpful for us.
spk07: Yeah, so when you kind of take a look at it, I think one thing to sort of look at is you can take a look at sort of our CapEx spend as a percentage of revenue sort of historically. So it'll probably fall there or a little bit lower than that. It's probably going to be a little bit lower than that, but that's kind of where we're going to land. So it is front-loaded. you know, obviously each truck is a significant investment for us, but again, a great revenue generating asset. So when we kind of look at that, I would kind of use that as sort of a gauge of sort of the ongoing CapEx. Again, just look at that historical percentage of revenue. It's going to sort of continue to sort of come down from that.
spk03: Okay, that's it. That's all the questions I had for you guys. Thank you so much. Thanks, David.
spk00: Our next question comes from David Marsh of Singular Research. Please go ahead.
spk06: Hey, good morning, guys. Thanks for taking the call. Good morning. How you doing, David? Hey, good, good. So, hey, if I could just follow up on that prior question about CapEx. So, last year, it looks like you did about $6.2 million on, you know, about $65 million in revenue. So, you know, if we were to extrapolate, I mean, we're thinking something in the 70 to 75 million revenue range, would it be good to assume like a 7 million-ish number for CapEx? Is that in the ballpark?
spk07: I think with that one, so it is going to, as a percentage of revenue, it is going to continue to drop, especially sort of when we continue to sort of scale and identify. So you're probably going to look at something in the sixes.
spk04: In the sixes. Okay.
spk07: Perfect.
spk06: Thank you very much for sharing that. And then my next question is, a housekeeping item that I think it's probably important to address. A pretty significant portion of the debt went current on the balance sheet at the end of the fiscal year last year. Obviously, that indicates that the debt matures, a big portion of the debt matures here in the next 12 months. Can you just talk about refinancing activities around that to extend that out so that that's not a concern?
spk07: Sure. I can actually talk about that. So I think the way the presentation is done for accounting purposes, we do have to disclose that that's current just based on some of the features of the debt. The reality is that Amort's sort of schedule for that is actually a lot longer. So in the notes to our financials, we do have a note section where it talks about sort of the long-term debt note where you can see the actual true Amort schedule. And you'll notice the actual true Amort schedule, it does extend out a number of years. uh, there's no requirement to actually do any refinancing. It's more just of an accounting exercise under our sort of our accounting rules where we have to classify it as, as current, but the actual sort of repayment schedule and amort schedule, uh, it would more mirror, um, the sort of the, the long-term debt schedule that you see in the notes to the financials, uh, you know, assuming obviously that, you know, there's no, um, no feature that's exercise which would force us to draw or we paid early which is not uh what we anticipate happening so i would look at that amort schedule uh in the long-term debt note i think it's no 10 or 11 um of the financials yeah let me take a look at let me take a closer look at that and uh get a better understanding there and i'll you know hit you up with any follow-up questions yeah and it looks like most of that's pretty low rate so i would
spk06: Hate to see you guys be forced to reply. No, we don't want to pay that off. Today's crisis. Okay, and then, you know, the acquisition front. So, you know, obviously a small one in the first quarter. Could you talk about landscape and, you know, kind of what you're – Your desires are for the balance of the fiscal year with regards to that.
spk02: Yeah, I can jump in on that. So our M&A pipeline is pretty good. We're always working an M&A pipeline. We've got deals in the pipeline. We've got deals of various sizes, large, medium, and small. And I guess the good news when you have a good pipeline is we can cherry-pick the deals. And that's exactly what we're doing. We're going to cherry pick. So if you sort of look at the prioritization of deals, number one, deals that are in market where we can get the maximum amount of cost extraction, the maximum amount of route density, those are our top priority deals. Whether they're small, medium, or large, those are our top priority deals because those are the most accretive to cash flow. They have the best return on invested capital. So that's priority number one. Priority number 1B, of course, is when franchisees are looking to exit, we'll buy them. Those are our um, uh, part of our, uh, plan. And, and, um, so that's, that's something that's, that's always in the, in the background and there's always franchisees that are, you know, getting ready to exit. And so, so we always have those. So those are sort of, when you look at the shredding business, you know, those are sort of our top two priorities. Um, if something's in a market where we isn't a pro shred franchisee or isn't, uh, a, um, um, tuck in into an existing market. It has to be attractive. Like MDK was attractive. It had some scanning. It brought us into Detroit. We could manage it from Chicago. So there's some special features to that, which was good. And the valuation, frankly, was very good, right? So the valuation is playing a role. So we want to cherry pick the best possible deals that are out there that provide the best return on invested capital that we possibly can. That's the goal of all of our deals that we're looking to do.
spk04: That's really helpful. Let me step back and let some others have a shot here.
spk05: Yeah, well, thanks, David. Good to hear from you.
spk00: Once again, if you have a question, please press star, then 1. Our next question comes from Devin Schilling of Ventum Financial. Please go ahead.
spk01: Hi, guys. Good morning. Good morning, Devin. Just on the SOC 2 certification, can you just remind me what customer set the certification opens up for ReadyShred? You know, is it on the scanning side? Is it on the shredding side? And also, I guess, just that timeline on that audit. Like, are we weeks away, months away? Any color would be great.
spk02: Yeah, no problem. So number one, certainly from a scanning perspective, because look, when we're processing the information, we're housing client data, right? So like temporarily, and in some cases longer than that. So you're housing their data, you know, your clients want you to know that you're have the right technology processes, controls, procedures, all of those types of things. And in fact, we had some clients go to us like we, or potential clients, we love, we've done the testing, we love you guys, but you know, our compliance wants a vendor that's a SOC 2 certified vendor. So that, you know, we're eagerly anticipating that certification. I'll talk about timeline in a second, Devin. The second part of this is, I don't know if everyone's familiar, but the United States, if you do work, any type of work with the government in the United States, you need to be NIST 800 certified or NIST 800 compliant. It's actually not a certification. Compliant. It's an IT protocol again. And so by having our SOC 2 certification, we check the vast majority of the boxes on the NIST 800 compliance. And again, that puts us a leg up on a lot of the independents in particular when it comes to shredding services or ITAT services or whatever other services that we provide to the federal government. And so there's a multiple opportunity here. So the timeline to get type 1 is imminent. I would be disappointed if we don't have it by June 30th. So that is imminent. Again, we're in the last throes of the audit, and the auditor is disappointed. a-okay then then we're going to get it and if they're not then we're not but uh we put in a lot of time and effort and energy and um you know so far passed all the tests that we're supposed to pass so so those are good news uh for us so so um and then the sock two type two you need to go through one year uh before you can get that so that that'll be about a year afterwards
spk01: Okay, I know that's great, Tyler. So obviously we'll open up a new customer set for you guys that might have been not reachable prior to this. That's right. Secondly here, just on the expected free cash flow growth, obviously it looks quite healthy here. Maybe you can just touch a bit on the key drivers and I guess how much is from just projected lower capex this year?
spk02: Yeah, Harjeet and I might tag team this one. Look, I think Operationally, which you've seen, you know, the company continues to perform operationally. The operational margins are continuing to improve, which is great. And that will bring cash flow in. You know, other things, I mean, you sort of think about cash flow from operations, right? It's how do you also better your working capital performance. cycles, right? And so, you know, we've got, we're introducing this year our client portals and some automated client, sorry, automated collection techniques. And some of that can even be run through Salesforce, which we've already installed. So there's a few opportunities there to just make that cycle flow faster, which is positive. So those things are there. And then CapEx, I mean, last year, and Harjit can elaborate, but in 2023, we replaced a lot of older trucks from the American and ShredX deal. That was by design. We had to do it. We went one year with their crappy trucks, pardon the word, but they weren't great, but we knew we needed to get through it. And now we replace them. That's the benefits, the operational benefits that we see in New York. Trucks are part of it. We've got strong people, good routes, a lot of good things happening there. But the trucks certainly were part of that equation. So when we do get a new truck, you get an uplift in uptime. You get a downshift in repairs and maintenance. You get a downshift in fuel use. So those are all positive on the cash generation front. But Harjit, did you want to just speak a little bit more to the CapEx there on the truck side?
spk07: Sure. So I think, so in terms of, if we kind of look at free cash flow, you look at sort of the inputs. So I think from the cash flow operations are really going to be driven, as Jack pointed out, by sort of our EBITDA growth. Obviously, Q1, we did $4 million. In EBITDA, Q2 and Q3, as Jeff also pointed out, are historically stronger as well in terms of sort of financial results. So when we kind of look at that, it's really going to be EBITDA because at the end of the day, I think when we look at CapEx, CapEx is going to be sort of more in line with what we are forecasting it to be more in line with what we had in 2023. So overall, the biggest driver is going to be EBITDA, the EBITDA growth. And so that's going to require us to really focus and continue to focus in on the operations, continue to get good margins. So obviously, we're doing a number of things, you know, from a pricing perspective, focusing sort of on sort of acquiring customers, growing the business organically. You know, obviously, we have the M&A pipeline, we closed on MDK, which will help, you know, and, you know, so there's a number of drivers to that. But I think the some of the levers obviously is dependent on us just going out and executing on them.
spk01: Yeah, that's great. Just on the price increases, I don't know, did you guys mention were they like low double digit, high single digit? Is there any color around that?
spk07: Sure. So in terms of price increases, what we're looking at is sort of in the 6% range right now. So with price increases, we haven't really... sort of, you know, historically, we haven't really sort of capitalized on the opportunity to sort of push through those price increases, you know, in response, obviously, you know, cost increases and sort of what the market is sort of doing. So I think this year we got sort of 6% in. We consider that sort of a healthy rate, but, you know, definitely something at the same time that's going to help us from a bottom line perspective.
spk01: Okay, and just last one quickly here for me. You guys talked about on the acquisition front, some franchisees may be targeted as well this year. I just wanted to know if any are up for renewal this year, if you guys have that top of mind.
spk02: Yeah, we've got a couple that are up for renewal. And of course, we're always chit-chatting with them about what they want to do. Typically, if they don't renew, they sell to us. Typically, if they renew... and they don't renew for a 10-year deal. They renew for a five-year deal. And typically when they renew for that five-year deal, they usually don't make it to the end of five. What they're looking to do is use that little bit more time to improve certain things in their business that should help them improve their overall valuation. So that's typically what they would do in those instances. So I guess the good news for us is we always have franchisees in the pipeline. We always have independents in the pipeline, and sometimes it shifts a little more franchisee-oriented. Sometimes it shifts a little more independent-oriented. But the priorities do not change. The depth in a marketplace is the most accretive acquisition you can garner from our ROIC perspective. Franchisees are great because they're very low risk. They're generally very successful and they create the foundation to further densify their business by doing other tokens. So both are great M&A pipelines to have and we have representatives from both.
spk01: Yeah, no, it's very good. Yeah, no, thanks for taking my questions here.
spk05: I'll jump back in the queue. Thanks, Dan.
spk00: This concludes the question and answer session. I would like to turn the conference back over to Jeffrey Hashim for any closing remarks.
spk02: That's great. So, again, thank you, everyone, for joining this morning and for the questions. And obviously, again, all the documentation has been filed. Should any of you have further questions, of course, reach out to Harjeet and I. Many of you on this call are our shareholders and longtime shareholders and supporters. We thank you. We thank you for believing in the management team and supporting the management team and You know, again, the hard hat goes on now, and we go work on the business and on the operations to make it better, and we will do that every single day. And so, again, we don't do it – none of this is on our own. We're a big team, and so we thank you for your support. So have a great day, everyone, and we look forward to talking with you soon.
spk00: to close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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