ZDC 2021, RECORD REVENUES FROM SECURITY & SURVEILLANCE ZEDCOR INC. ANNOUNCES FOURTH QUARTER RESULTS FOR 2021, RECORD REVENUES FROM SECURITY & SURVEILLANCE BUSINESS AND APPOINTMENT OF CHIEF REVENUE OFFICER
Zedcor Inc. has released its financial and operating results for the three and 12 months ended Dec. 31, 2021.
The fourth quarter results reflect the Company's continued execution of its strategy and pivot away from its traditional oilfield equipment rentals business. Q4 2021 revenues increased to $4.1 million and annual revenues increased to $13.6 million for the year ended December 31, 2021. This was a 66% increase compared to the Q4 2020 and a 94% increase for the year. Both numbers are also a high point for Company as it continues to expand its security & surveillance business. The transition away from oilfield equipment rentals was fully completed in the fourth quarter with the announcement of a $6.1 million fully committed 5-year term loan and a $3.0 million equipment financing facility. This will significantly reduce financing costs, improve cash flow and provide additional financing for continued expansion.
On June 30, 2021, the Company announced the sale of its Rental Segment assets. Accordingly, these operations were classified as discontinued operations on the Company's financial statements. The discussion throughout our MD&A reflect continuing operations of the Company's security and surveillance services, unless otherwise noted. Zedcor recorded $961 and $4,407 of adjusted EBITDA from continuing operations for the three and twelve months ended December 31, 2021. This compares to $1,181 and $3,019 of adjusted EBITDA from continuing operations for the three and twelve months ended December 31, 2020. The Company's security and surveillance services segment saw increased revenues and EBITDA for the year ended December 31, 2021 compared to 2020 due to increased customer demand of its larger fleet of MobileyeZ security towers. Zedcor exited the year with 265 MobileyeZ security towers which was an increase of 115 units throughout 2021.
Zedcor is actively managing the increased customer demand for security solutions by adding to its fleet of towers. The Company has also opened an equipment branch in British Columbia to service customers in the Lower Mainland and Fraser Valley.
Financial and operational highlights for the three and twelve months ended December 31, 2021 include:
- Revenue for the quarter ended December 31, 2021 increased by $1,618 from $2,458 to $4,076. This increase was driven by a larger fleet of MobileyeZ security towers. In Q4 2020, the Company completed retrofitting its fleet of existing solar hybrid light towers to MobileyeZ security towers. Subsequent to this completion, Zedcor continued to add to its fleet allowing it to generate additional revenues throughout 2021. The Company also developed and deployed two additional types of MobileyeZ: a fully electric security tower and a diesel security tower. Zedcor exited 2021 with 54 Electric MobileyeZ which are used largely for civil and municipal construction and 21 Diesel MobileyeZ which can be used for a variety of different applications as they can offset an onsite power generator.
- Net loss from continuing operations was ($535) for the three months ended December 31, 2021. This compares to a net loss of ($39) for the three months ended December 31, 2020. The ($535) net loss from continuing operations for Q4 2021 included a $585 one-time charge recorded in finance costs relating to the Company refinancing its debt in October 2021. Without this one-time charge, the Company would have $50 of net income from continuing operations.
- For the twelve months ended December 31, 2021, net loss from continuing operations was ($1,580) compared to ($1,810) for the twelve months ended December 31, 2020. The reduction in net loss was a result of higher revenues driven by an increased fleet size and higher utilization for the Company's security tower fleet.
- Reducing debt and finance lease liabilities in the first twelve months of the year. The Company exited the year with $7,948 outstanding on its credit facilities compared to $17,317 as at December 31, 2020. In October 2021, the Company announced that it had entered into a new credit facility which includes a $6.1 million fully committed 5 year term loan, a $3.0 million revolving equipment financing facility and a $3.0 million revolving line of credit. This facility will significantly reduce financing costs and provide additional capital for growth.
- The Company announcing the closing of the sale of its Rental Segment assets for total proceeds of $11.3 million on June 30, 2021 in line with its strategy to sell these assets and reduce debt on the balance sheet. The proceeds were used entirely to reduce high interest debt. In addition to the proceeds of $11.3 million the Company will continue to help manage those assets and will be paid a monthly management fee of $25 per month for up to 36 months. This transaction also allows the Company to capitalize on potential oilfield activity upside by providing for a 35% annual bonus if certain targets are exceeded. This transaction resulted in a $2.7 million loss on sale but significantly reduced the Company's balance sheet leverage and allows the Company to focus on expanding its security business throughout North America. In addition, this allowed the Company to access traditional financing subsequent to the end of the quarter. This financing will reduce financing costs and increase cash flow going forward.
- The Company announcing the award of two long term contracts for its Solar Hybrid MobileyeZ. One contract was for the rental and service of 100 Solar Hybrid MobileyeZ to a pipeline contractor. The second contract was a 21 month rental contract for 15 Solar Hybrid MobileyeZ to a large engineering and construction joint venture. These contracts were expanded in Q3 2021 allowing the Company to maintain its high utilization rates.
- The Company continued to manage its 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.
LIQUIDITY AND CAPITAL RESOURCES
On October 18, 2021, the Company repaid its existing credit facilities and 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. $4.4 million of the proceeds of the term loan was used to repay the Company's outstanding Loan and Security Facility.
- 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 the Company pays down the debt, it can borrow back up to the facility maximum of $3.0 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. The Authorized Overdraft is due on demand and any outstanding overdraft bears interest at Prime + 1.5%.
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 end December 31, 2021, a modified debt servicing covenant of 1.25 to 1.00. The modification relates to the amount of debt payments for 2021 being assumed as $2.2 million.
- 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 part of the repayment of the Company's previous credit facilities, the Company incurred a one time payout of $202 on its Loan and Security facility. In addition, the Company expensed $414 of costs related to the issuance of the previous credit facilities. These items are recorded as interest expense on the Statement of Loss.
As at December 31, 2021, the Company is in compliance with its financial covenant requirements. The debt servicing ratio as calculated based on the Financing Agreement was 2.01 to 1.00, the funded debt to EBITDA was 1.53 to 1.00 and the funded debt to EBITDA from continuing operations was 2.08 to 1.00.
OUTLOOK
Despite the challenging operating environment and reduced economic activity as a result of the COVID-19 pandemic, the Company continues to execute on its long-term strategy of growing its S&S segment. We continued to effectively use cash flow to purchase additional MobileyeZ security towers in order to use it to provide surveillance services. The Company has also used technological solutions to reduce the capital costs of expanding this service line.
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 $3.0 million equipment financing facility and lower debt costs, Zedcor is in a strong position to grow all service lines.
As a result of the sale of its Rental segment assets, the Company has significantly reduced leverage on its balance sheet and can focus on its main priorities:
- 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 plans to launch a new type of fully electric security tower in late Q4 2022 which is geared towards residential contractors. This is in addition to the newly developed Hybrid MobileyeZ which was launched in late Q3 2021 and the Battery Electric MobileyeZ which was launched in late Q1 2022. The Hybrid MobileyeZ is targeted towards customers with remote infrastructure projects and power generation needs while 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.
- Expand its geographical footprint in Western Canada and expand to Eastern Canada. In Q4 2021, the Company opened an equipment branch in British Columbia in order to serve the rapidly growing Lower Mainland and Fraser Valley. The Company has plans to expand to Ontario in Q2 2022 with an equipment branch and an Eastern Canada monitoring center.
- Increase revenue from fixed monitoring sites allowing for a base of contracted monthly revenues.
Appointment of Chief Revenue Officer
Zedcor is pleased to announce that due to the Company's growth plans in 2022, James Leganchuk, the Company's Chief Operating Officer, will transition to become the Company's Chief Revenue Officer in order to focus on revenue expansion across Canada. Mr. Leganchuk was previously the Company's VP of Sales and has an extensive background in growing revenues. Mr. Leganchuk's operational responsibilities will be split amongst the Company's executive team and the Company intends to eventually appoint a Chief Operating Officer as it continues to grow.
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