RediShred Capital Corp.
Annual Report 2022

Plain-text annual report

ANNUAL REPORT TSXV: KUT 2 Redishred Capital Corp. | 2022 Annual Report About Redishred 3 Profile 4 Growth Strategy 5 Our Locations Across the US 5 Core Values 6 Purpose 7 Vision 8 Values 9 Goals 10 Annual Highligths 11 Letter to Shareholders 12 Strong Growth from our Same Location Operations 14 Another Strong Acquisition Year 14 Franchise Support 14 Care for our Environment and the Communities we Serve 15 Looking Forward to 2022 16 Financial & Operational Highlights 17 System Sales (USD) In Millions 19 OILI/Share Fully Diluted (CAD) 19 Corporate Location Operating Income (CAD) In Millions 20 Debt as a % of Total Asset 20 Strategic Targets 21 Our Secure Processes 23 Destroying Information at Your Door 24 Scanning & Information Management 25 Securely Recycling Your e-Waste 26 Our Team 27 Information 28 Table of Content About Redishred “We define a successful outcome by the good we do for our planet, our employees and our clients. These good deeds are interlinked, and by delivering on this we will and do provide easy client service, build a great place to work and help change our environment for the better, all while driving growth in our earnings with the view to driving strong returns to our shareholders. Doing the right thing drives a sustainable business for everyone.” - Jeffrey Hasham CEO 4 Redishred Capital Corp. | 2022 Annual Report About Us Profile Redishred Capital Corp. (“Redishred” or “the Company”) is a publicly traded company that owns and operates PROSHRED®, PROSCAN® and Secure e-Cycle. Collectively, our brands operate in the information management industry and provide services accross the major markets of the United States with System Sales over $70 million USD. REDISHRED™ The Company’s mandate is to build shareholder value through a market- development and consolidation strategy, delivering highly profitable operations by means of franchising, joint venture partnerships and corporate acquisitions. On-site services Document shredding Hard drive destruction Product destruction SHREDDING Digital retention Digital imaging Document management SCANNING Electronic security Electronics recycling Refurbishment services RECYCLING Redishred Capital Corp. | 2022 Annual Report 5 Our Locations Across the US Redishred offers secure information management services in 42 metropolitan markets across 25 states of the United States through its corporate and franchised locations. In addition, with the network of certified shredding partners, the Company provides services nationwide. Growth Strategy Redishred’s strategy is to: Grow durable and sustainable revenue and EBITDA streams for all locations Expand the location footprint in North America by way of acquisitions, partnerships, and franchising Drive service depth and cash flows in all locations by way of tuck-in acquisitions Core Values Redishred Capital Corp. | 2022 Annual Report 7 Redishred is committed to providing the highest standards of security, confidentiality, and customer service. Our largest subsidiary, PROSHRED® holds both ISO 9001 and NAID AAA certifications, becoming the only national provider to be dual certified. All materials are destroyed in accordance with federal and state regulations. Purpose Easily! The most secure information management services. 8 Redishred Capital Corp. | 2022 Annual Report The Company’s vision is to provide easy and environmentally sustainable solutions for our clients, recognizing the responsibility and impact we have on the communities we serve and the environment we live in. Saving trees is one part of the equation, we also strive to minimize our driving and idling time on the routes while providing shredding services to our clients. We rigorously maintain our shredding vehicles to minimize undue exhausts and reduce our carbon footprint. As we look to the future, we will continue to operate newer and more fuel-efficient vehicles and we are also exploring with our shredding truck partners the use of shredding vehicles that run on alternative energy sources, including electric. Vision Durable overtime. Sustainable for good. Easiest! Always. During 2022, we saved approximately 895,000 trees through our paper recycling services. Redishred Capital Corp. | 2022 Annual Report 9 Operating with integrity, being open and transparent in our communications, creating awareness, holding ourselves accountable, respecting others, and growing, both financially and as a business organization, represent our core values. These core values extend beyond just providing and delivering our core services to clients. We are also involved in our communities and create awareness of issues that impact many. For example, we are a key partner of the American Institute for Cancer Research, annually hosting Nationwide Shred Cancer Events. To date, we have raised over $200,000 to support cancer research through our shred events. Values Integrity - Communication - Awareness Accountability - Respect - Growth Together we believe we can Shred Cancer. 10 Redishred Capital Corp. | 2022 Annual Report Goals Make it easy. Stay relevant. Empower people. Through our purpose, vision and values, our goals are to make it easy for our clients to use our services, stay relevant in our industry, and empower our clients to be secure and green. We invest in technology to stay at the forefront of the latest developments in our industry and empower our people to provide the best services to clients. Our people drive the achievement of our goals. The Company has a diverse workforce in all positions and at all levels; we believe that the best service is provided by a diverse team that has care for our clients and character to do the right thing when no one is looking. Redishred Capital Corp. | 2022 Annual Report 11 Annual Highlights 1. EBITDA is a non-IFRS measure and is defined as earnings before interest, taxes, depreciation and amortization. EBITDA also excludes government assistance, re-measurements of contingent consideration, foreign exchange gains and losses, and gains and losses on disposal of tangible assets. 2. OILI/share is a non-IFRS measure and is defined as Operating income (revenues less all operating expenses, including depreciation on tangible assets), inclusive of interest expense and interest income, on a per share basis. 3. Debt as a percentage of total assets is a capital management measure. Consolidated Revenue $57.2M (58% increase vs 2021) Operating Income Less Net Interest Expense per Share - OILI/Share2 $0.40 (82% increase over 2021) Trees Saved by PROSHRED® ~895,000 (Trees saved in 2022) Consolidated EBITDA1 Margin 27% (200 bps increase vs 2021) Total Fair Value of Four Acquisitions Completed $13.8M (Includes PROSHRED® Philadelphia) Debt as a Percentage of Total Assets3 52% Letter to Shareholders Redishred Capital Corp. | 2022 Annual Report 13 Letter to Shareholders Dear Shareholders: I am pleased to write the annual letter to our shareholders to report on Redishred’s financial and operational performance and to comment on our goals and priorities for 2023. 2022 was another year of external challenges, starting with the Omicron variant of COVID-19 that impacted many of our employees, followed by the invasion of Ukraine by Russia that caused diesel fuel prices to skyrocket, the continuing supply chain issues that impacted the delivery of new trucks and truck parts, and the highest wage inflation since the early 1980s. All of this was thrown at the Redishred team in 2022. How did the Redishred team respond? They responded with courage, care and character, and were agile, flexible, and creative. Our over 250 employees found ways to route more efficiently, extend the life of our trucks, and deliver excellent client service, leading to Redishred’s best year ever. Redishred’s financial and operating results for 2022 were very strong. We achieved revenues of $57.2M, up 58% versus 2021. We attained 27% EBITDA margins, a 200-basis point improvement over 2021, and OILI/Share of 40 cents, an 82% increase versus 2021. Redishred’s management team was successful in meeting the strategic targets for 2022. Redishred’s management team remains firmly committed to maximizing value and long-term profitability by concentrating on three key areas: We have seen positive results from this focus, with all three of these focus areas contributing to our earnings growth in 2022. 1 2 3 Drive same and existing location revenue and EBITDA growth, focusing on the acquisition of recurring revenue clients from small and medium sized enterprises. Conduct accretive acquisitions by purchasing franchisees when they are ready to exit and independents in existing and new markets. Support franchisees to help them grow durable and sustainable revenue and EBITDA streams. 14 Redishred Capital Corp. | 2022 Annual Report Strong Growth from our Same Location Operations Another Strong Acquisition Year Franchise Support Increasing earnings from our existing locations is a key component to our strategy. We have invested in 2022 on initiatives to further drive revenues and control costs that will drive continued operating leverage. Many of the initiatives that commenced in 2022 will continue into 2023, including: (1) finishing the deployment of our new workflow software that includes stronger route management tools, client engagement tools and a collection automation platform, (2) continued investment in newer trucks with a view to reducing client disruptions due to repairs, reducing repair costs, reducing fuel consumption and enhancing our green initiatives; and (3) investment in marketing and sales resources, both people and technology tools (including SalesForce CRM) with a view to acquiring new clients and enhancing route density. 2022 was another strong year on the acquisition front, as Redishred acquired four shredding operations during the year, valued at $13.8 million. Key acquisitions for us included: Chicago, IL: We acquired the business assets of MDD, a long standing shredding independent just south of our Chicago location. This operation was a good tuck-in, with over 60% in recurring revenue. New Jersey and Florida: We acquired the assets of SDD, a long standing shredding independent. The operation had clients in numerous PROSHRED® markets including New Jersey and Southeast Florida, where Redishred has existing corporate locations. New Jersey: We acquired the assets of Tech Shredders, a hard drive destruction independent. The operation had clients in the New Jersey market, where Redishred has a large corporate location. This acquisition expanded our Hard Drive destruction capabilities in both the New Jersey and New York City markets. Philadelphia, PA: We acquired the business from our long standing PROSHRED® franchisee in the market. Philadelphia is one of the largest metropolitan markets in the United States, and with this acquisition completed, we now have corporate operations from Boston, MA, through Connecticut, New York, North New Jersey and into Philadelphia. All of the above acquisitions were conducted by utilizing cash on hand, earnouts and appropriate bank financing. Redishred’s heritage includes a strong performing franchise system. During 2022, the PROSHRED® system saw same location system sales grow by 20% versus 2021. This strong growth was driven by continued investment by the system in marketing and sales resources, trucks and technology. The Redishred franchise support team continues to evolve and deploy new programs and tools. Redishred Capital Corp. | 2022 Annual Report 15 Care for our Environment and the Communities we Serve Environment: Redishred and its brands have a deep legacy of focusing on recycling and energy savings. The very foundation of our business is to secure our client’s information and to ensure that at the end of the information’s life cycle, it is securely destroyed, and the destroyed materials are recycled into other products. Our Green initiatives include: 1. 99% of the paper and products destroyed are sent for recycling. In 2022 we saved approximately 895,000 trees by recycling the shredded paper we collect from our clients. This effort keeps 895,000 trees in the eco-system to absorb CO2 and deliver oxygen to the planet. This also prevents 895,000 trees from being used in the pulping process; this process has heavy energy requirements. 2. During 2022, Redishred purchased fourteen new trucks, these trucks have the latest emissions equipment and are much more fuel efficient than older models. Redishred’s five-year plan is to ensure that 90% of its fleet is under five years in age to ensure we are doing our part to reduce carbon emissions. Redishred is also in early- stage discussions with its key shred truck partner to be one of the first shredding service providers to test a fully electric shredding vehicle. 3. Electronic and Media Recycling. Through our Responsible Recycling (R2) certified partners, Redishred recycles and promotes the reuse of electronic devices. Reusing electronics conserves our resources and decreases air/water pollution, as well as greenhouse gas emissions that are caused by manufacturing virgin materials. Community: The American Institute for Cancer Research (“AICR”) is the cancer charity that fosters research on the relationship of nutrition, physical activity, and weight management to cancer risk. AICR interprets the scientific literature and educates the public about the results. They have contributed more than $100 million for innovative research on the prevention of cancer. Cancer can be prevented. As a Company and a Franchise System, we have raised over $200,000 USD for AICR since 2014. This year marks the 10th anniversary of our annual, national Shred Cancer events that are typically held in the Summer and Fall. It is at this moment that many of us at PROSHRED® take more than a moment to remember David Wright, our former franchisee in Charlotte, North Carolina. He was a wonderful father and husband, a collaborative and bright business leader and, unfortunately, did not survive his battle with brain cancer. It is in his honour that we hold this event every year. Please join us in the Summer and Fall at your nearest PROSHRED® location to not only Shred your private information, but more importantly help join us in our endeavor to Shred Cancer. 16 Redishred Capital Corp. | 2022 Annual Report Looking Forward to 2023 We are optimistic that the worst of the COVID-19 global pandemic and the collateral economic damage it caused is in the past and we are very hopeful of the opportunities in front of us. We look to continue our operational plans which emphasize growing the number of new recurring clients we service in our existing locations. This pathway is the most effective manner to combat inflationary pressures that are a biproduct of the pandemic as the increase in clients served on any given route drives stronger route density and enhanced gross profit margins and operating income. We also look forward to conducting accretive acquisitions, Redishred has the capability to continue the acquisition program that it commenced in earnest in 2018. Redishred’s annual general meeting of shareholders will be held on May 25, 2023, at 1:00 PM Atlantic time at the Westin Nova Scotian, 1181 Hollis Street, Halifax, Nova Scotia. We look forward to supporting the great city of Halifax and e-connecting with our many shareholders there. Redishred will also be holding an investor reception for our many Toronto, Ontario based shareholders and capital markets partners on May 29, 2023, at 5:00 PM Eastern time at the Vintage Conservatory, 100 Lombard Street, Toronto, Ontario. Thank you for your continued interest, support, and investment in Redishred. Yours truly, Jeffrey Hasham Chief Executive Officer Financial & Operational Highlights 18 Redishred Capital Corp. | 2022 Annual Report Financial & Operational Highlights Values in CAD and 000's, except per unit and percentage amounts. As at and for the years ended 2022 2021 2020 Operations (Excludes COVID 19 Government Subsidies unless otherwise stated) Revenue 57,226 $ 36,199 $ 25,437 $ EBITDA 15,318 $ 9,191 $ 5,938 $ Operating income less net interest expense ("OILI") 7,242 $ 3,463 $ 1,323 $ Cash provided from operations1 11,587 $ 8,403 $ 6,976 $ OILI/Share (Weighted average outstanding) 0.40 $ 0.22 $ 0.09 $ Financial Position Total assets 97,811 $ 79,334 $ 58,688 $ Total liabilities 50,530 $ 38,974 $ 28,280 $ Total equity 47,281 $ 40,360 $ 30,408 $ Debt to total assets percentage 52% 49% 48% Normalized Fixed Charge Coverage Ratio2 1.82 1.57 1.19 Normalized Total Funded Debt to EBITDA ratio3 2.11 2.39 2.95 Location Information Corporate locations 15 14 11 Franchised locations 15 16 19 US Markets serviced 42 42 40 1. Includes COVID-19 related government subsidies in 2020 and 2021 2. A common measure of credit risk used by lenders, this measure considers the Redishred’s ability to pay both interest and principal on outstanding debt and is calculated as defined in the Company’s credit facility agreement with one of its lenders. 3. This measures the Company’s leverage and its ability to pay all outstanding debt and assesses the Company’s financial health and liquidity position. This ratio is calculated as defined in Redishred’s credit facility agreement with one of its lenders. Redishred Capital Corp. | 2022 Annual Report 19 System Sales (USD) In Millions $3 $3 $4 $4 $5 $6 $8 $6 $5 $8 $16 $12 $14 $17 $21 $25 $28 $32 $38 $35 $43 $56 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 -$0.17 -$0.06 $0.08 $0.16 $0.18 $0.17 $0.19 $0.13 $0.09 $0.22 $0.40 $0.12 $0.09 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 OILI/Share Fully Diluted (CAD) OILI/Share CV19 Subsidy 20 Redishred Capital Corp. | 2022 Annual Report Corporate Location Operating Income (CAD) In Millions Debt as a % of Total Asset 106% 106% 104% 95% 94% 42% 29% 44% 48% 49% 52% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 $0 $1 $2 $2 $2 $3 $3 $4 $4 $8 $14 $2 $1 F12 F13 F14 F15 F16 F17 F18 F19 F20 F21 F22 CV19 Subsidy Redishred Capital Corp. | 2022 Annual Report 21 Growth of Same Location Shredding System Sales: Strategic Targets 2022 Target Same location shredding system sales growth of 10% to USD$45M. 2022 Performance The target was exceeded. Same location shredding system sales grew by 18% to USD$49M. 2023 Target Same Location shredding system growth to USD$57M. Longer-term Target Growth averaging over 8% per year. 2022 Target Growth of 8% in same location EBITDA to $13.4M and growth of 11% in same location operating income to $8.8M. 2022 Performance The target was exceeded. Same location EBITDA grew 39% to $17.2M, and same location operating income grew 57% to $12.4M. 2023 Target Growth in same location EBITDA to $22.1M and growth in same location operating income to $15.6M. Longer-term Target Same location EBITDA and Operating Income growth of 10% per year. The Company will revisit this longer-term target, if the inflationary environment in the U.S. continues to persist, and the Company’s CSP wages and fuel costs are impacted. Growth in Same Location EBITDA and Operating Income (Corporate Locations): 22 Redishred Capital Corp. | 2022 Annual Report 2022 Target Add USD$4M to USD$5M in revenue by way of accretive acquisitions. 2022 Performance The target was exceeded. The Company completed the acquisition of the assets of PROSHRED® Philadelphia, Tech Shredders LLC (“Tech Shredders”), Mobile Document Destruction (“MDD”) and Safeguard Document Destruction (“SDD”) in 2022. In prior year 2021, these companies, in aggregate, generated revenue of USD$5.3M. 2023 Target Add USD$4M to USD$5M in revenue by way of accretive acquisitions. Longer-term Target Add, in aggregate, USD$4M to USD$5M in revenue per year by way of acquisitions of both existing franchise locations, and independent shredding and scanning businesses. Expand by way of Accretive Acquisitions: 2022 Target G&A costs at 12% of total revenue. 2022 Performance This target was met. G&A costs were 12% of total revenue. 2023 Target G&A costs at 12% of total revenue. Longer-term Target G&A costs at 10% of total revenue. Improve Operating Leverage(1): (1) G&A costs as a percentage of revenue target does not include Growth Fund revenue and costs. 2022 Target EBITDA margin of at least 30% and operating income margin of at least 20% before transition and acquisition costs. 2022 Performance The target was exceeded. The EBITDA and operating income margins from acquired operations were 36% and 22%, respectively. 2023 Target EBITDA margin of at least 35% and operating income margin of at least 20% before transition and acquisition costs. Longer-term Target Maintain EBITDA and operating income margins of at least 35% and 20%, respectively. EBITDA and Operating Income from acquired Corporate Locations: Our Secure Processes 24 Redishred Capital Corp. | 2022 Annual Report Redishred, throught its brand PROSHRED®, is the innovator of the on-site destruction process. We shred at your door and then ensure that your shredded paper is recycled, contributing to the reduction of waste. The process is entirely hands-free and automated by our state-of-the-art shredding truck. We are often asked, how it works and so the following outlines our process. Destroying Information at Your Door Place your confidential documents in our locked PROSHRED® consoles, bins or containers. Our Customer Service Professional (CSP) will arrive at client site at a scheduled date and time. The CSP will empty the documents into a PROSHRED® security bin. The bin is lifted by the truck’s automated system and you can witness the whole process in action. The CSP will bring the locked bin to our on-site mobile shredding truck. All documents are fully shredded at your door (crosscut) and you receive a certifcate of destruction at the end. 1 3 5 2 4 6 Redishred Capital Corp. | 2022 Annual Report 25 Through its brand PROSCAN®, Redishred helps organizations digitize, retrieve, and protect their physical documents, and as a result they can optimize space, time, costs, and increase productivity. We pride ourselves on conducting strict quality control at each stage in the document scanning and document management process. See below how our process work to ensure a superior final product and customer service. Scanning & Information Management 26 Redishred Capital Corp. | 2022 Annual Report Redishred, through its brand Secure e-Cycle, offers high-standard electronic recycling services with a decade of experience perfecting the e-waste process to ensure your data is protected while responsibly recycling your IT and electronic assets. Securely Recycling Your e-Waste The equipment is registered in our system. Unique serial numbers and essential information associated with each asset are scanned and recorded in our proprietary database. Our technicians will perform an equipment diagnosis to evaluate, update and refurbish damaged or outdated equipment. At this step, we categorize it for “recycle” or “remarket”. The data contained on hard drives and electronics is eliminated via data sanitization or physical destruction. All company asset tags are removed from the equipments at this phase. Secure e-Cycle offers full transparency in about the e-waste recycling process. After the service is complete, customers will receive a “Certificate of Destruction” and “Continuity of Ownership” specifying the disposition of each device handled and the sale of all remarketed electronics. Assets categorized as “remarket”, will be marketed and sold. Equipment that doesn’t qualify for resale are destroyed and recycled usign an EPA-compliant process. 1 3 5 2 4 Our Team “The strength of the team is each individual member. The strength of each member is the team.” - Phil Jackson Former Head Coach of the Chicago Bulls (1989 to 1998) Information Redishred Capital Corp. | 2022 Annual Report 29 Information Redishred Capital Corp. Home Office & National Support Center PROSHRED® Franchising Corp. Franchise Support Center Redishred Acquisitions Inc. | US Offices Toronto, Ontario 2233 Argentia Rd, Suite 202, East Tower Mississauga, Ontario, Canada, L5N 2X7 Syracuse, New York 6067 Corporate Drive East Syracuse, NY 13057 NORTH EAST Northern New Jersey, New Jersey Primary Office 152 Eagle Rock Avenue Roseland, NJ 07068 Albany, New York 164 Montgomery Street Albany, NY 12207 Buffalo, New York 5384 Ontario Avenue Hamburg, NY 14075 New Haven, Connecticut 801 North Main Street Ext. Wallingford, CT 06492 New York City, New York 5 West Main Street Suite #104 Elmsford, NY 10523 Philadelphia, Pennsylvania 25 Industrial Blvd Paoli, PA 19301 Rochester, New York 75 South Clinton Ave., Suite 510 Rochester, NY 14604 Springfield, Massachusetts 75 Post Office Park Wilbraham, MA 01095 Syracuse, New York 6067 Corporate Drive East Syracuse, NY 13057 Watertown, New York 118 N Massey St. Watertown, NY 13601 SOUTH EAST Atlanta, Georgia Primary Office 5980 Unity Drive, Suite D Norcross, GA 30071 Charlotte, North Carolina 803 Pressley Rd - Suite 108 Charlotte, NC 28217 Fort Lauderdale, Florida 5217 NW 35th Avenue Fort Lauderdale, FL 33309 Miami, Florida 201 South Biscayne Blvd Suite 2800 Miami, FL 33131 Norfolk, Virginia 780 Lynnhaven Parkway, suite 400 Virginia Beach, VA 23452 Northern Virginia, Virginia 44845 Falcon Pl #104 Sterling, VA 20166 Richmond, Virginia 4730 Wistar Rd Richmond, VA 23228 MIDWEST Chicago, Illinois Primary Office 7700 Graphics Drive Tinley Park, IL 60477 Kansas City, Kansas 3052 S 24th Street Kansas City, KC 66106 Milwaukee, Wisconsin 1425 Commerce Ave – Unit C Brookfield, WI 53045 TSXV: KUT

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