Zedcor has $1.52-million continuing ops profit in Q2 ZEDCOR INC. ANNOUNCES SECOND QUARTER RESULTS FOR 2022 WITH RECORD MOBILEYEZ SECURITY TOWER DEPLOYMENT, 69% INCREASE IN REVENUE, 55% INCREASE IN ADJUSTED EBITDA AND $0.02 EARNINGS PER SHARE
Zedcor Inc. has released its financial and operating results for the three and six months ended June 30, 2022.
Q2 2022 revenues increased to $5.3 million and the Company had net income of $1.5 million or $0.02 per share. This represented a 69% increase in revenues compared to Q2 2021 and reverses a net loss from June 2021. Both numbers are also a high point for Company as it continues to expand its security & surveillance business.
Zedcor recorded $2.5 million of EBITDA from continuing operations and $1.6 million of adjusted EBITDA from continuing operations for the three months ended June 30, 2022. This compares to $1.1 million of adjusted EBITDA from continuing operations for the three months ended June 30, 2021.
Subsequent to the end of the quarter, the Company signed leases to open equipment and servicing branches in Toronto and Ottawa, Ontario. This continues Zedcor's geographic expansion and allows the Company to service customers throughout eastern Canada. The Company already has 17 MobileyeZ deployed at customer sites in Ontario and will be allocating more equipment to that part of the country in the second half of the year.
Zedcor recorded $1,694 and $3,067 of adjusted EBITDA from continuing operations for the three and six months ended June 30, 2022. This compares to $1,091 and $2,097 of adjusted EBITDA from continuing operations for the three and six months ended June 30, 2021.
The Company's security and surveillance services saw increased revenues and EBITDA for the three and six months ended June 30, 2022 compared to 2021 due largely to increased customer demand of its larger fleet of MobileyeZ security towers. Zedcor exited the period with 366 MobileyeZ security towers which was an increase of 102 when compared to December 31, 2021 and 191 units when compared to June 30, 2021. While a smaller part of the business, the Company's other two service lines also saw increased revenues when compare to prior periods. Fixed site monitoring contracts and service revenue saw increases of 168% and 187% for the three and six months ended June 30, 2022 while security personnel revenues also increased significantly as a result of a contract award for integrated security services in February 2022.
Financial and operational highlights for the three and six months ended June 30, 2022 include:
- Revenue for the three and six months ended June 30, 2022 increased by $2,153 and $4,097 from $3,103 and $5,790 to $5,256 and $9,887. This increase was driven by a larger fleet of MobileyeZ security towers and high utilization rates of the Company's fleet. The Company's flagship Solar Hybrid MobileyeZ saw utilization rates over 90% for the six months ended June 30, 2022.
- Net income from continuing operations was $1,528 for the three months ended June 30, 2022. This compares to a net loss of ($935) for the three months ended June 30, 2021. For the six months ended June 30, 2022 net income from continuing operations was $1,956 compared to a net loss of ($1,341) for the six months ended June 30, 2021. The reversal of the net loss is directly attributable to: 1) a larger fleet of towers and strong customer demand which drove utilization and, in turn, revenues; 2) reduced financing costs as a result of reduced debt load and interest rates when the Company obtained a new financing agreement in Q4 2021 which provided additional capital, and significantly reduced interest rates; and 3) $883 in other income. As part of the sale of the Company's Rental segment assets in 2021, the Company is to receive a 35% bonus for every dollar of EBITDA over certain thresholds. As a result of this agreement, the Company will receive $883.
- Continued growth in its fixed monitoring service line. Zedcor exited the quarter with 72 fixed monitoring sites which is a 80% increase when compared to June 30, 2021. In addition, the Company has additional contracts signed with customers for fixed monitoring services with camera installations expected to be completed throughout the second half of 2022.
- Adding 57 additional Electric MobileyeZ and 45 additional Solar Hybrid MobileyeZ bringing its total fleet to 111 and 235 units, respectively. Of the 235 Solar Hybrid MobileyeZ, 120 are equipped with ground disturbance sensors which further enhances the capabilities of these units. The Company will continue to manage its supply chain and logistics by constructing additional security towers based on customer demand and expansion plans into other strategic markets in Canada.
- 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 continued in Q2 2022 and has been expanded beyond the initial introductory term.
- The issuance of 5.9 million common shares and 3.0 million common share purchase warrants for gross proceeds of $3.0 million. This financing was used to grow the Company's fleet of MobileyeZ security towers and expand its geographical footprint.
On October 18, 2021, the Company entered into a new financing agreement ("Financing Agreement") which consists of:
- 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.
- 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. On April 27, 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. As at June 30, 2022 the Prime Interest Rate was 3.70% and the interest rate on the Revolving Equipment Financing was 5.70%. As the Company pays down the Revolving Equipment Financing, it can borrow back up to the facility maximum of $6.0 million.
- 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 June 30, 2022 the Prime Interest Rate was 3.70% and the interest rate on the Revolving Equipment Financing was 5.20%.
The Amended 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 June 30, 2022, the Company did not have quarterly financial covenant requirements to which it had to comply with.
OUTLOOK
Zedcor continues to execute on its long-term strategy of growing its S&S segment. While there were supply chain delays throughout the year to date which slowed down the Company's ability to build security towers, we continue to effectively use a mix of cash flow, the proceeds of our equity raise and debt to purchase additional MobileyeZ security towers to provide surveillance services to our expanding customer base. The Company was able to offset the supply chain delays with higher utilization of the tower fleet, allowing internal revenue targets to be exceeded for the first half of the year. In addition, there are inflationary pressures that the Company is actively monitoring to maintain margins and this remains a priority for management.
In March 2022, despite challenging market conditions, the Company completed an equity financing for gross proceeds of $2.9 million and used the entire net proceeds to purchase additional capital assets. In April, the Company expanded its equipment financing facility to $6.0 million which provides 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 throughout Canada. Subsequent to the end of the quarter, the Company has opened up branches in Toronto, Ontario and Ottawa, Ontario with plans to open a second monitoring station in Eastern Canada in Q1 2023. Currently the Company has 17 MobileyeZ located in Ontario with plans to significantly expand the fleet in Eastern Canada. With the expanded equipment financing providing additional access to capital for the Company, Zedcor is in a strong position to grow all service lines.
Priorities that the Company intends to focus on for the remainder of 2022 include:
- Expand its fleet of security towers. 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.
- Growing presence in Eastern Canada. The Company has expanded to Ontario with equipment branches in Ottawa and Toronto. The Company has secured customers in Ontario and Quebec and intends to allocate a sizable portion of its remaining 2022 capital spending to expand its Eastern Canada operations and fleet size. The Company has also hired sales people and a branch manager in Ottawa.
- Increase revenues from both the fixed site monitoring services and security personnel services. Zedcor anticipates exiting the year with over 100 fixed sites being monitored which provides a base of contracted monthly recurring revenues on top of its security tower revenue.
- Expand its base of recurring monthly revenue through contracts for its MobileyeZ fleet. Subsequent to the end of the quarter, the Company entered into a one-year contract for 10 Electric MobileyeZ with a commercial real estate development firm.
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 and six months ended June 30, 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.