Zedcor Inc. Announces Net Income, First Quarter Results for 2022

·19 min read

Calgary, Alberta--(Newsfile Corp. - May 25, 2022) - Zedcor Inc. (the "Company") (TSXV: ZDC) today announced its financial and operating results for the three months ended March 31, 2022.

Q1 2022 revenues increased to $4.6 million and the Company had net income of $0.4 million or $0.01 per share. This represented a 73% increase in revenues compared to the Q1 2021 and reverses a net loss from March 2021. Both numbers are also a high point for the Company as it continues to expand its security & surveillance business.

Zedcor recorded $1.4 million of adjusted EBITDA from continuing operations for the three months ended March 31, 2022. This compares to $1.0 million of adjusted EBITDA from continuing operations for the three months ended March 31, 2021. Q1 2022 adjusted EBITDA from continuing operations is also a record quarterly high for the Company.

Todd Ziniuk, President and CEO, said: "Our business continues to grow, and demand remains strong for our services as customers continue to see the benefits of using technology to replace and enhance physical security needs. This is reflected in our strong quarterly results for Q1 2022. I would like to thank our customers for their continued support and the Zedcor team for their efforts in helping to grow our business."

Financial and Operating Results for the three months ended March 31, 2022:



Three months ended March 31


(in $000s, except per share amounts)


2022



2021


Revenue from continuing operations


4,631



2,683


Revenue from discontinued operations


-



2,077


Adjusted EBITDA1,2


1,373



2,163


Adjusted EBITDA from continuing operations1,2


1,373



1,000


Adjusted EBIT from continuing operations1,2


651



575


Net income (loss) from continuing operations


428



(373

)

Net income from operations


428



224


Net income (loss) per share from continuing operations


 



 


Basic


0.01



(0.01

)

Diluted


0.01



(0.01

)



 



 



1 Adjusted for severance costs and discontinued operations
2 See Financial Measures Reconciliations below

The Company's security and surveillance services segment saw increased revenues and EBITDA for the year ended March 31, 2022 compared to 2021 due to increased customer demand of its larger fleet of MobileyeZ security towers. Zedcor exited the period with 291 MobileyeZ security towers which was an increase of 27 when compared to December 31, 2021 and 120 units when compared to March 31, 2021. While the Company placed orders for equipment with plenty of lead time and anticipated exiting the quarter with more than 350 units, it was not immune to supply chain disruptions. However, revenue was higher than anticipated due to higher utilization rates throughout the quarter. In addition, equipment deliveries are back to anticipated levels subsequent to March 31, 2022.

Zedcor is actively managing the increased customer demand for security solutions by adding to its fleet of towers and expanding its geographic footprint. Subsequent to the end of the quarter, the Company secured its first contract with a large auction house in Montreal, Quebec for fixed site monitoring and its first customer for MobileyeZ security towers in Ontario. We intend to open an equipment branch in Ottawa, Ontario in late Q2 2022 and another equipment branch in the Greater Toronto Area in Q3 2022, depending on customer demand and availability of equipment.

Financial and operational highlights for the three months ended March 31, 2022 include:

  • Revenue for the quarter ended March 31, 2022 increased by $1,948 from $2,683 to $4,631. This increase was driven by a larger fleet of MobileyeZ security towers and nearly full utilization of the Company's fleet of security towers. The Company's flagship Solar Hybrid MobileyeZ saw utilization rates over 90% for the three months ended March 31, 2022.

  • Net income from continuing operations was $428 for the three months ended March 31, 2022. This compares to a net loss of ($373) for the three months ended March 31, 2021. The reversal of the net loss is directly attributable to higher revenues and reduced financing costs as a result of reduced debt load and interest rates. In Q4 2021, the Company obtained a new financing agreement which provided additional capital, and reduced interest rates significantly.

  • Continued growth in its fixed monitoring service line. Zedcor exited the quarter with almost twice as many sites under contract when compared to March 31, 2021. In addition, the Company has additional contracts signed with customers for fixed monitoring services with camera installations expected to be completed throughout Q2 2022.

  • On February 17, 2022, the Company announced that it has entered into an agreement to provide integrated security solutions to a Canadian based energy infrastructure company. This contract accounts for approximately 10% of the Company's revenue in March 2022 and has been expanded beyond the initial introductory term.

  • The issuance of 5.2 million Units for gross proceeds of $2.6 million. This financing will be used to grow the Company's fleet of MobileyeZ security towers and expand its geographical footprint.

  • Continued management of supply chain and logistics. Orders have been placed for light towers, cameras and communication equipment for the Company's 2022 capital program. In addition, the Company will continue to actively manage demand and will proactively place orders for equipment; additional security towers may be constructed based on customer demand, expansion plans into other strategic markets in Canada and availability of capital.

SELECTED QUARTERLY FINANCIAL INFORMATION

(Unaudited - in $000s)

Mar
31
2022

 

Dec
31
2021

 

 

Sept
30
2021

 

 

June
30
2021

 

 

Mar
31
2021

 

 

Dec
31
2020

 

 

Sept
30
2020

 

 

Jun
30
2020

 

Revenue from continuing operations

4,631


4,076



3,684



3,103



2,683



2,458



1,673



1,441


Net income (loss) from continuing operations

428


(535

)


296



(935

)


(373

)


26



(443

)


(1,341

)

Adjusted EBITDA¹

1,373


961



1,353



1,492



2,163



1,789



1,157



874


Adjusted EBITDA per share - basic¹

0.02


0.02



0.02



0.03



0.04



0.03



0.02



0.02


Net income (loss) per share from continuing operations



 



 



 



 



 



 



 


Basic

0.01


(0.01

)


0.01



(0.02

)


(0.01

)


(0.00

)


(0.01

)


(0.01

)

Diluted

0.01


(0.01

)


0.01



(0.02

)


(0.01

)


(0.00

)


(0.01

)


(0.01

)




 



 



 



 



 



 



 


Net income (loss) per share from discontinued operations



 



 



 



 



 



 



 


Basic

-


-



-



(0.05

)


0.01



(0.04

)


(0.01

)


(0.01

)

Diluted

-


-



-



(0.05

)


0.01



(0.04

)


(0.01

)


(0.01

)

Adjusted free cash flow¹

1,216


345



2,068



198



(284

)


(279

)


518



1,860


 







 

















1 See Financial Measures Reconciliations below

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash
The following table shows a summary of the Company's cash flows by source or (use) for the three months ended March 31, 2022 and 2021:


Three months ended March 31


(in $000s)

2022


 

2021



$ Change



% Change


Cash flow from (used in) continuing operating activities

1,386


 

(250

)


1,636



654%


Cash flow used in continuing investing activities

(1,550

)

 

(799

)


(751

)


94%


Cash flow from (used in) financing activities

1,684


 

(1,405

)


3,089



220%


 

The following table presents a summary of working capital information:


As at March 31


(in $000s)

2022

 

2021

 

 

$ Change

 

 

% Change

 

Current assets

6,299


5,023



1,276



25%


Current liabilities *

5,968


6,798



(830

)


(12%

)

Working capital

331

 

(1,775

)

 

2,106


 

118%



*Includes $1.7 million of debt and $1.4 million of lease liabilities in 2022 and $3.5 million of debt and $1.5 million of lease liabilities in 2021

The primary uses of funds are operating expenses, maintenance and growth capital spending, interest and principal payments on debt facilities. The Company has a variety of sources available to meet these liquidity needs, including cash generated from operations. In general, the Company funds its operations with cash flow generated from operations, while growth capital and acquisitions are typically funded by issuing new equity or debt.

Principal Credit Facility


Interest rate

Final maturity

Facility maximum

 

Outstanding as at March 31, 2022

 

 

Outstanding as at December 31, 2021

 

Term Loan

5.15%

Oct 2026

6,100


5,563



5,861

 

Revolving Equipment Financing

Prime + 2.00%

Revolving

3,000


2,813



1,182

 

Authorized Overdraft

Prime + 1.50%

Revolving

3,000


-



905

 





 

8,376

 

 

7,948


Current portion





(1,232

)

 

(2,231

)

Long term debt




 

7,144

 

 

5,717



On October 18, 2021, the Company entered into a new financing agreement ("Financing Agreement") which consists of:

  1. A $6.1 million term loan that is fully committed for five years ("Term Loan"). The Term Loan bears interest at 5.15% and will have monthly blended principal and interest payments of $116. $4.4 million of the proceeds of the term loan was used to repay the Company's outstanding Loan and Security Facility.

  2. A $3.0 million revolving equipment financing facility ("Revolving Equipment Financing"). The Company is able to draw on this facility at any time for up to 75% of new equipment purchases. The draws bear interest at Prime + 2.0% and each draw will be amortized over 5 years with blended principal and interest payments. As at March 31, 2022 the Prime Interest Rate was 2.70% and the interest rate on the Revolving Equipment Financing was 4.70%. As the Company pays down the debt, it can borrow back up to the facility maximum of $3.0 million.

  3. An authorized overdraft facility ("Authorized Overdraft") up to $3.0 million, secured by the Company's accounts receivable, up to 75%, less priority payables which are GST payable, income taxes payable, employee remittances payable and WCB payables. The Authorized Overdraft is due on demand and any outstanding overdraft bears interest at Prime + 1.5%. As at March 31, 2022 the Prime Interest Rate was 2.70% and the interest rate on the Revolving Equipment Financing was 4.20%.

The Financing Agreement is secured with a first charge over the Company's current and after acquired equipment, a general security agreement, a subordination and postponement agreement with a director of the Company with respect to a note payable, and other standard non-financial security.

The agreement has the following annual financial covenant requirements:

  • For the fiscal year ends December 31, 2022 and onwards, a debt servicing covenant of 1.25 to 1.00 and a funded debt to EBITDA covenant of 3.00 to 1.00.

As at March 31, 2022, the Company did not have quarterly financial covenant requirements that it had to comply with.

Subsequent to March 31, 2022, the Company entered into an amended financing agreement with its lender (the "Amended Financing Agreement"). The Amended Financing Agreement increased the Revolving Equipment Financing maximum to $6.0 million. The Amended Financing Agreement did not alter any material terms of the Company's prior loan agreement other than an additional underwriting fee of $15,000, equivalent to 0.5% of the increase in the equipment financing facility. The Company's financing agreement remains secured by the existing general security agreement, which provides for a first charge security interest over the Company's present and future personal property. The Amended Financing Agreement also retains the same financial covenants and standard non-financial provisions under the previous financing agreement.

OUTLOOK

Zedcor continues to execute on its long-term strategy of growing its S&S segment. While there were supply chain delays in Q1 2022 which slowed down the Company's ability to build security towers, this was offset by higher utilization of the Company's fleet which allowed internal revenue targets to be exceeded. In addition, there was inflationary pressures that the Company is actively monitoring. We continued to effectively use cash flow to purchase additional MobileyeZ security towers in order to use it to provide surveillance services.

On March 30, 2022, the Company completed an equity financing for gross proceeds of $2.6 million, despite challenging market conditions and intends to use the entire net proceeds to purchase additional capital assets. Subsequent to the end of the quarter, the Company expanded its equipment financing facility to $6.0 million which provides additional liquidity to expand our security tower fleet.

Utilization of the Company's surveillance towers fitted with high resolution cameras and supported by live verified, 24/7 remote monitoring, continues to be high and we expect the utilization rates to remain steady going forward. As Canada starts to emerge from the COVID-19 pandemic, Zedcor is seeing increased activity and demand for its services. The Company has also grown its salesforce to focus on growing on-site security personnel and remote monitoring revenues, in addition to expanding its geographical footprint in British Columbia. With the recently announced financing, additional access to capital available to the Company via the $6.0 million equipment financing facility and lower debt costs, Zedcor is in a strong position to grow all service lines.

Priorities that the Company intends to focus on in 2022 include:

  1. Expand its fleet of security towers. The Company plans to aggressively grow its fleet of security towers throughout 2022. In addition, the Company plans to continue to invest in research & development. Zedcor launched the Battery Electric MobileyeZ in late Q1 2022. The Battery Electric MobileyeZ is an improvement to the Company's Electric MobileyeZ as it has battery backup for up to 24 hours in case of interruptions to power supply.

  2. Expand its geographical footprint in Western Canada and expand to Eastern Canada. The Company has expanded to Ontario in Q2 2022 with an equipment branch and an Eastern Canada monitoring center. The Company has secured its first customer in Ontario and Quebec and intends to allocate a sizable portion of its 2022 capital spending to expand its Eastern Canada operations and fleet size.

  3. Increase revenue from fixed monitoring sites allowing for a base of contracted monthly revenues.

SUBSEQUENT EVENTS

On March 30, 2022, the Company completed an equity offering through a short form prospectus and issued 4,533,930 of units for gross proceeds of $2,266,965. As part of the equity offering the Company also completed a non-brokered private placement, which closed on April 6, 2022, of 700,000 units for gross proceeds of $350,000. Each unit consists of one share of the Company and one-half of a warrant, with each Warrant entitling the holder thereof to acquire one common share of the Company at a price of $0.70 for a period of two years from the date of issue.

On April 7, 2022 the Company converted all of the preferred shares currently issued and outstanding. The 4,400,000 preferred shares will be converted into 4,400,000 common shares of the Company at the stated conversion price of $0.70 per common share. In respect of the cumulative dividend payable on the preferred shares in the amount of $1.4 million, the Company will issue 2.9 million common shares of the Company at a deemed price of $0.50 per share.

NON-IFRS MEASURES RECONCILIATION

Zedcor Inc. uses certain measures in this MD&A which do not have any standardized meaning as prescribed by International Financial Reporting Standards ("IFRS"). These measures which are derived from information reported in the consolidated statements of operations and comprehensive income may not be comparable to similar measures presented by other reporting issuers. These measures have been described and presented in this MD&A in order to provide shareholders and potential investors with additional information regarding the Company.

Investors are cautioned that EBITDA, adjusted EBITDA, adjusted EBITDA per share, adjusted EBIT and adjusted free cash flow are not acceptable alternatives to net income or net income per share, a measurement of liquidity, or comparable measures as determined in accordance with IFRS.

EBITDA and Adjusted EBITDA

EBITDA refers to net income before finance costs, income taxes, depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before costs associated with severance, gains and losses on sale of equipment and stock based compensation. These measures do not have a standardized definition prescribed by IFRS and therefore may not be comparable to similar captioned terms presented by other issuers.

Management believes that EBITDA and Adjusted EBITDA are useful measures of performance as they eliminate non-recurring items and the impact of finance and tax structure variables that exist between entities. "Adjusted EBITDA per share - basic" refers to Adjusted EBITDA divided by the weighted average basic number of shares outstanding during the relevant periods.

A reconciliation of net income to Adjusted EBITDA is provided below:


Three months ended March 31


(in $000s)

2022

 

 

2021


Net income (loss) from continuing operations

428


 

(373

)

Add (less):



 

 


Finance costs

223


 

944


Depreciation of property & equipment

520


 

353


Depreciation of right-of-use assets

196


 

113


(Gain) on sale of equipment

(26

)

 

-


(Gain) loss on disposal of right-of-use asset

-

 

 

(72

)

EBITDA from continuing operations

1,341

 

 

965

 

Add:



 

 


Stock based compensation

16

 

 

31


Severance costs

-

 

 

4


Foreign exchange loss

16

 

 

-

 


32

 

 

35

 

Adjusted EBITDA from continuing operations

1,373


 

1,000


Discontinued operations

-

 

 

1,163


Adjusted EBITDA

1,373

 

 

2,163


 

Adjusted EBIT

Adjusted EBIT refers to earnings before interest and finance charges, taxes, and severance costs.

A reconciliation of net income to Adjusted EBIT is provided below:


Three months ended March 31


(in $000s)

2022

 

2021


Net income (loss)

428


224


Add (less):





Finance costs

223


944


Severance costs

-


4


Discontinued operations

-

 

(597

)

Adjusted EBIT from continuing operations

651

 

575



Adjusted free cash flow

Adjusted free cash flow is defined by management as net income plus non-cash expenses, plus or minus the net change in non-cash working capital, plus severance costs, less maintenance capital. Maintenance capital is also a non-IFRS term. Management defines maintenance capital as the amount of capital expenditure required to keep its operating assets functioning at the same level of efficiency. Management believes that adjusted free cash flow reflects the cash generated from the ongoing operation of the business. Adjusted free cash flow is a non-IFRS measure generally used as an indicator of funds available for re-investment and debt payment. There is no standardized method of determining free cash flow, adjusted free cash flow or maintenance capital prescribed under IFRS and therefore the Company's method of calculating these amounts is unlikely to be comparable to similar terms presented by other issuers.

Adjusted free cash flow from continuing operations is calculated as follows:


Three months ended March 31


(in $000s)

2022

 

2021


Net income (loss) from continuing operations

428


(373

)

Add non-cash expenses:



 


Depreciation of property & equipment

520


353


Depreciation of right-of-use assets

196


113


Stock based compensation

16


31


Finance costs (non-cash portion)

36

 

318



1,196

 

442


Add non-recurring expenses:



 


Severance

-

 

4



1,196


446


Change in non-cash working capital

20

 

(730

)

Adjusted free cash flow from continuing operations

1,216

 

(284

)


No Conference Call

No conference call will be held in conjunction with this release. Full details of the Company's financial results, in the form of the condensed consolidated interim financial statements and notes for the three a months ended March 31, 2022 and 2021 and Management's Discussion and Analysis of the results are available on SEDAR at www.sedar.com and on the Company's website at www.zedcor.ca.

About Zedcor Inc.

Zedcor Inc. is a Canadian public corporation and parent company to Zedcor Security Solutions Corp. Driven by our guiding principles of being pioneers, innovators and honest, Zedcor is engaged in providing technology based security & surveillance services in Western and Central Canada. The Company is disrupting the security industry with its three main service offerings to customers across all market segments: 1) rental, service and remote monitoring of its proprietary MobileyeZ security towers; 2) live monitoring of fixed site locations; and 3) security personnel. The Company trades on the TSX Venture Exchange under the symbol "ZDC".

FORWARD-LOOKING STATEMENTS

Certain statements included or incorporated by reference in this MD&A constitute forward-looking statements or forward-looking information, including management's belief that streamlining rental assets with newer equipment will drive improvements in equipment rental rates and utilization, and that the expanded market reach and customer base will lead to more diversity in the Company's revenue stream and increase utilization. Forward-looking statements or information may contain statements with the words "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", "budget", "should", "project", "would have realized', "may have been" or similar words suggesting future outcomes or expectations. Although the Company believes that the expectations implied in such forward-looking statements or information are reasonable, undue reliance should not be placed on these forward-looking statements because the Company can give no assurance that such statements will prove to be correct. Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of assumptions about the future and uncertainties. These assumptions include that the Company's new solar hybrid light tower and related security and surveillance service offerings will lead to more diversity in revenue streams and protect against future down swings in the economic environment. Although management believes these assumptions are reasonable, there can be no assurance that they will prove to be correct, and actual results will differ materially from those anticipated. For this purpose, any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. The forward-looking statements or information contained in this MD&A are made as of the date hereof and the Company assumes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new contrary information, future events or any other reason, unless it is required by any applicable securities laws. The forward-looking statements or information contained in this MD&A are expressly qualified by this cautionary statement.

This MD&A also makes reference to certain non-IFRS measures, which management believes assists in assessing the Company's financial performance. Readers are directed to the section above entitled "Financial Measures Reconciliations" for an explanation of the non-IFRS measures used.

For further information contact:

Todd Ziniuk
Chief Executive Officer
P: (403) 930-5430
E: tziniuk@zedcor.ca

Amin Ladha
Chief Financial Officer
P: (403) 930-5430
E: aladha@zedcor.ca

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/125371

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