Redishred Capital Corp.

Highlights:

• Redishred Capital Corp completes acquisition of Security Shredding on August 31, 2023.
• Security Shredding offers paper and hard drive shredding, generating $660,000 USD revenue in 2022.
• Pro forma EBITDA margin for Security Shredding estimated at 40%-45%, enhancing Redishred’s financial performance.
• Acquisition strengthens Redishred’s New Jersey presence, benefiting from routing synergies.

Quarterly Highlights:

Consolidated Highlights:

• The Company generated revenue of $16.8 million CAD, growing $2.2 million CAD, or 15% versus Q2 2022.
• Shredding sales for Q2 2023 were $12.5 million CAD, growing 28% versus Q2 2022.
• Consolidated EBITDA for Q2 2023 was $4.5 million CAD, decreasing 1% versus Q2 2022.
• Consolidated EBITDA excluding the impact of net recycling revenue was $2.2 million CAD for Q2 2023, growing 28% versus Q2 2022.

Corporate Locations Highlights:

• Corporate location revenue for Q2 2023 grew 15% versus Q2 2022 to $16.2 million CAD (10% constant currency growth – US Dollars is the constant currency).
• Corporate location EBITDA grew 8% versus Q2 2022 to $6.2 million CAD (3% constant currency growth).
• Same corporate location EBITDA was $5.4 million CAD, decreasing 5% versus Q2 2022 (10% constant currency decrease), driven by lower net recycling revenue due to lower commodity paper prices.

Capital Management:

• The Company generated $2.7 million CAD in cash from operations during Q2 2023.
• As at June 30, 2023, the Company has $5.4 million CAD in cash, $1 million CAD available on its operating line of credit, and $4.8 million CAD available on its non-revolving re-advanceable term loan.

Highlights:

• Arrowhead is updating coverage on RediShred Capital Corp with a fair value bracket of CAD 4.58 to CAD 5.42 (share price on July 18, 2023: CAD 3.89) based on the Discounted Cash Flow (DCF) method.
• RediShred Capital Corp. (RediShred) reported 35.8% revenue growth year-over-year (YoY) to CAD 17.0 mn in Q1 2023. This growth was led by acquisitions in the last 12 months, organic sales growth from new customers, and price hikes implemented during FY 2022 in response to inflation in input costs, fuel prices, and drivers’ wages.
• The Corporate Locations segment reported its revenue of CAD 16.4 mn, a growth of 36.9% YoY. Recycling Sales reported sales of CAD 3.3 mn, up 43.3% YoY, while Shredding Sales recorded revenue of CAD 12.4 mn, up 41.4% YoY. Electronic waste and scanning generated CAD 0.37 mn and CAD 0.38 mn in revenue, respectively. During the quarter, the Same Corporate Location revenue stood at CAD 14.5 mn, an increase of 21.1% over the corresponding period in the previous year.
• The Company’s consolidated EBITDA ascended by 16.5% YoY to CAD 4.7 mn, driven by more robust Same Corporate Location EBITDA growth and acquired EBITDA from acquisitions in the previous year. EBITDA for Total Corporate locations rose by 23.1% from Q1 2022 to CAD 6.1 mn. Due to new customer acquisitions and rising paper prices, the Same Corporate Location segment’s EBITDA climbed by 13.4% to CAD 5.6 mn. The company reported a consolidated EBITDA margin of 27.9%, a decrease of c. 460 basis points (bps). In comparison, the corporate location and same corporate location margins were 37.0% and 38.5%, respectively, as opposed to both being 41.1% in Q1 2022.
• Selling, General, and Administrative (SG&A) expenses stood at CAD 1.8 mn, an increase of 42.9% over Q1 2022, mainly due to increased spending on human resources, technology, operational finance, and marketing to support inorganic and organic revenue growth. Despite this, SG&A expenses, as a percentage of total revenue, remained at 10%, the same as in Q1 2022. Net profit for the quarter stood at c. CAD 0.7 mn as compared with CAD 0.3 mn in Q1 2022.
• The company considers development through acquisitions to be the essential element of its long-term growth plan. The company is in talks with potential acquisition targets in the US. It is actively seeking to purchase prospects through a combination of cash on hand, contingent consideration payable in cash, and debt and equity financing, as necessary.
• The company has a positive outlook as it has anticipated strong demand for scheduled and unscheduled services driven by a higher lead conversion ratio, thereby contributing to top-line growth. Many new businesses are looking to digitize their physical and paper documents securely and conveniently, which will continue favoring Scanning services.
• The Company is still facing inflationary headwinds regarding truck supply, repair and maintenance, efficiency, and labor. However, it is showing signs of improvement as compared with last year. Although the Company has not implemented any price increases in Q1 2023, it may look at a price hike of c. 4-5% in the near future to cope with the inflationary pressures.

Highlights:

• Arrowhead is updating its coverage on RediShred Capital Corp. (TSXV: KUT) with a fair value bracket of CAD 4.84 to CAD 5.54 (share price on June 22, 2023: CAD 4.09) based on the Discounted Cash Flow method.
• KUT reported a 47.8% year-on-year (YoY) revenue growth during Q4 2022 when the revenue increased to CAD 15.4 mn. Growth during the quarter was accentuated by a strong performance from the acquisitions made during the previous 12 months, organic sales growth, and higher recycling revenue resulting from increased tonnage and higher recycled paper prices. The major factors driving the organic growth were the strong recovery of the US economy, the continued easing of COVID-19 restrictions, and the addition of new client accounts. As a result, KUT ended the year, i.e., FY 2022, with revenue of CAD 57.2 mn, 58.1% up from FY 2021.
• The Corporate Locations segment’s revenue stood at CAD 55.0 mn in FY 2022, a 60.9% rise from the previous year. This impressive growth was underpinned by 47.9% YoY growth from Shredding Services, while Scanning Sales and Electronic sales notched 18.5% and 39.1% YoY growth, respectively. Recycling Sales activities revenue progressed to CAD 11.7 mn, up 163.7% YoY. Franchising & Licensing revenue was reported at CAD 2.2 mn, down 10.4% YoY as the number of franchises decreased by one (acquired by RediShred Capital to become part of the Corporate Locations segment).
• System Sales continued significant growth during the quarter and year when the revenue growth touched higher double-digits, registering a growth of 28.7% and 40.2% YoY, respectively. Performance during the quarter remained impressive across the segment, except for Scanning System Sales, which experienced a decline of 48.7% YoY to end the year with 14.1% YoY growth. The decline in Scanning sales was majorly due to the timing of new scanning projects. Additionally, the company is targeting to drive its Same Location Shredding System Sales to USD 57.0 mn in FY 2023, an increase of 26.7% over the FY 2022 targeted revenue.
• The company reaped dividends from the strategic acquisitions completed over the previous 12 months, combined with higher Same Corporate Location EBITDA growth, which resulted in a consolidated EBITDA growth of 85.2% YoY to CAD 3.1 mn during Q4 2022 with a consolidated EBITDA margin of 19.9% as compared with 15.9% in Q4 2021. EBITDA in FY 2022 stood at CAD 15.3 mn, a 66.7% increase over FY 2021, with the margin increasing to 26.8%, an increase of 140 basis points (bps) over the previous year. Furthermore, the Same Location EBITDA target for the company is CAD 22.1 mn (an increase of 64.9% over FY 2022’s target), with a margin of c. 36% for FY 2023.
• The operating margin expanded by c. 400 bps, driven by higher EBITDA and controlled cost, thereby showcasing a growth of c. 192.0% YoY during the quarter to reach CAD 1.2 mn. However, the company reported a net loss for the quarter, which widened to c. CAD 1.1 mn as compared with CAD 0.8 mn in Q4 2021, majorly driven by higher interest expense, which stood at c. CAD 0.7 mn compared with CAD 0.5 mn in the corresponding period in the previous year, a growth of over 50.0%. Despite this, the company ended the year with a net income of c. CAD 5.9 mn in FY 2022, as compared with CAD 2.1 mn in FY 2021.
• KUT continued its acquisition-led strategy to expand its addressable market. The company acquired the Proshred Philadelphia business from its franchisee on November 01, 2022, for USD 7.1 mn. Proshred Philadelphia generated USD 2.8 mn and USD 2.2 mn revenue in 2021 and 2020, respectively. Post-acquisition, Proshred Philadelphia contributed revenue of USD 0.6 mn in FY 2022 to KUT’s top line. Additionally, during the year, KUT acquired the assets of Mobile Document Destruction (“MDD”), Safeguard Document Destruction Inc. (“SDD”), and Tech Shredders LLC (“Tech Shredders”). These strategic acquisitions helped the company in further scaling and growing its business. The Company is in discussions with other acquisition targets. It actively seeks acquisition opportunities in the US to pursue its long-term growth strategy of development through acquisitions, especially by developing its merger-and-acquisition pipeline through a combination of small, medium, and large companies, which will drive route density, thereby delivering more substantial margins and mitigating the risk. The company increased its target for FY 2023 revenue from acquisitions to USD 5-6 mn from USD 4-5 mn in FY 2022.
• The company’s outlook remains strong as it anticipates substantial demand for both scheduled and unscheduled services driven by a higher lead conversion ratio, thereby contributing to top-line growth. As more businesses look to digitize their physical and paper documents securely and conveniently, Scanning services are set to become a strong growth contributor for the company in the future. KUT also expects strong growth in Electronic Waste with a return to normalcy. However, the company is still experiencing a truck parts supply challenge while the inflationary headwinds in driver wages and fuel pricing have cooled off slightly. The company expects an improvement in FY 2023 as Q1 2023 has seen better truck parts supply than the previous year. The company has already implemented a price increase across the corporate locations in Q3 2022 and will explore further price hikes in FY 2023.

Highlights:

MOBILE SHREDDING:

• Paper Shredding
• Hard-Drive Destruction
• Product Destruction

INFORMATION MANAGEMENT:

• Document Scanning
• Document Management
• Workflow Automation

E-WASTE RECYCLING:

• Refurbishment and resales
• Mid-West focused

This is an executive summary of Canada-based Information Management company Redishred from CEO Jeff Hasham, who will run you through Redishred’s slide deck.

Highlights:

• Arrowhead is updating coverage on RediShred Capital Corp with a fair value bracket of CAD 4.50 to CAD 5.30 (share price on January 25, 2023: CAD 3.90) based on the Discounted Cash Flow (DCF) method.
• RediShred Capital Corp. (RediShred) reported 50.3% year-on-year (YoY) revenue growth to CAD 14.7 mn in Q3 2022, which was driven by a strong performance from the acquisitions made over the last 12 months and organic sales growth. The organic sales growth was due to the strong US economy, continued investment in sales resources, continued easing of COVID-19 restrictions and higher recycling revenue resulting from increased tonnage and higher recycled paper prices.
• The Corporate Locations segment revenue was reported at CAD 14.1 mn in Q3 2022, up 52.4% YoY. Shredding Sales reported revenue of CAD 10.1 mn, an increase of 42.4% YoY, while Recycling Sales reported revenue of CAD 3.1 mn, grew by 140.0% YoY. Electronic waste sales increased by 29.0% YoY, while Scanning sales declined by 9.0% to 72.9% YoY.
• The company’s consolidated EBITDA grew by 27.4% YoY to CAD 3.6 mn in Q3 2022, while the Corporate Location EBITDA grew by 32.5% to CAD 4.9 mn. The increase in the company’s consolidated EBITDA was attributable to acquisitions completed over the previous 12 months, addition of new scheduled shredding service clients, continuity of demand for unscheduled shredding services and increased paper tonnage and prices. However, margins of the company were also impacted by shortage of drivers and wage inflation, supply chain disruption, particularly for truck parts and truck supplies, and high fuel costs during the quarter. As a result, the total consolidated EBITDA margin declined by c. 400 basis points in Q3 2022 and stood at 25.0% in comparison with 29.0% in Q3 2021. Despite the inflationary headwinds faced by the company during the quarter, net income stood at CAD 3.9 mn as compared with CAD 1.6 mn in Q3 2021.
• The company has increased the price of its scheduled clients by 7-9% in the second half of Q3 2022 to manage the rise in input costs due to inflation. The company is confident to pass-on the price hike. As a result, the company expects to derive its benefit in Q4 2022 and early 2023.
• The company has a positive outlook as it anticipates demand for shredding services to increase significantly, driven by Scheduled sales. The company continues to see marketing leads for both scheduled and unscheduled services increase. The efforts of the sales team have already resulted in encouraging leads conversion rates thereby contributing to top-line growth. The company is also continuing to see interest in its scanning services, as an increased number of businesses look to digitize their physical, paper documents securely and conveniently. The company also expects a strong growth in Electronic Waste with the return of normalcy. Going forward, the company will look to leverage its marketing efforts to tap into the underpenetrated market.
• The company is continuously looking to develop its M&A pipeline through a combination of small, medium and large companies, in order to drive route density, thereby delivering stronger margins and mitigating the risk.
• The company recently acquired Proshred Philadelphia, which offers paper and hard drive shredding, product destruction and paper recycling services for a cost of c. USD 7.1 mn. The acquisition of Proshred Philadelphia provided RediShred with a platform to continue the strong growth seen in Philadelphia. Post-acquisition, the company now had corporately owned locations in the New York, New Jersey and Pennsylvania corridor, allowing for fleet, administrative and sales synergies.