Zedcor Inc. Announces Fourth Quarter Results for 2024, Diversification of Revenue and Continued USA Expansion

Rhea-AI Summary

Zedcor Inc. (TSXV: ZDC) announced strong financial results for Q4 2023, with revenues of $5.8 million and adjusted EBITDA of $1.4 million. The company diversified its customer base, reaching 90% utilization rates post two major projects. They expect record revenue from their MobileyeZTM security tower fleet. Zedcor's US operations are expanding, aiming to manufacture 50+ security towers monthly by Q3 2024.

Positive

• Strong Q4 2023 financial results: $5.8 million revenues, $1.4 million adjusted EBITDA
• Diversified customer base post two major projects
• Record revenue expected from MobileyeZTM security tower fleet
• US operations expanding: aiming to manufacture 50+ security towers monthly by Q3 2024

Negative

• None.

Calgary, Alberta--(Newsfile Corp. - April 10, 2024) - Zedcor Inc. (TSXV: ZDC) (the "Company") today announced its financial and operating results for the three months and twelve months ended December 31, 2023.

Q4 2023 revenues were $5.8 million and the Company generated adjusted EBITDA of $1.4 million. The Company's two large pipeline security projects concluded in the fourth quarter of 2023 and the Company was able to diversify its customer base as a result by adding over 190 customers. Furthermore, the Company's revenue base is now largely diversified across customers and geographies. Subsequent to the end of the year, utilization rates have reached 90% and daily revenues are at comparable levels to when the two pipelines projects were active. March 2024 was one of Zedcor's most active months ever and the Company expects to achieve record monthly revenue from its MobileyeZ^TM security tower fleet.

During the quarter, the Company had approximately 40% of its MobileyeZ security tower fleet in Ontario. In addition, the Company exited 2023 with 50 towers at its Houston equipment and service center which has subsequently increased to 72. These security towers have reached 100% utilization and the Company is starting to build a backlog of demand at its Houston service center. The fleet is fully deployed across a number of different customers, including the largest home builder in the US, general contractors in Texas and two Canadian customers who have USA based operations.

US Operations and Manufacturing Update:

Zedcor's MobileyeZ^TM manufacturing operations are starting to ramp up. We are on track to complete 20 Solar Electric MobileyeZ^TM security towers in April and intend to streamline our manufacturing in order to build 50 or more security towers a month starting in Q3 2024. The Company anticipates bringing the total US fleet to 400 or more security towers by the end of 2024.

Zedcor's Solar Electric MobileyeZ^TM will be a fully standalone security tower with battery backup. It can also be plugged in to power in winter months if there is not enough sunlight. This is an innovative security tower and first of its kind in the North American market with dual power capabilities, allowing it to function in any environment across the USA and Canada. It is also zero emissions, helping customers reduce their carbon footprint and meet environmental targets.

Todd Ziniuk said: "As the number of deployments of our MobileyeZ^TM continue to increase in the US, our team continually demonstrates our innovativeness. We have upgraded all of our cameras across the fleet to have AI at the edge. We have also started offering MobileyeZ^TM with radar units. This improves our service levels and increases our already industry leading theft diversion. The disruptive nature of our security towers, combined with 24/7 Live, Verified Monitoring^TM, is having an impact on the traditional security industry as evidenced by the demand we are seeing and the backlog that we are starting to build in the US. The Company is excited about its prospects in the US market and has seen unprecedented demand for its MobileyeZ^TM security towers. With its manufacturing operations ramping up, the Company has control to meet the demands of the US market. We are also extremely pleased to increase our presence in retail security. This is an industry where traditional security measures are either ineffective or prohibitively expensive and the sector is ripe for disruption. We are excited to work with top names in the retail sector and we look forward to demonstrating our service first approach in order to grow the relationship."

FINANCIAL & OPERATING RESULTS FOR THE THREE & TWELVE MONTHS ENDED DECEMBER 31, 2023:

		Three months ended December 31						Twelve months ended December 31
(in $000s, except per share amounts)		2023			2022			2023			2022
Revenue		5,799			6,415			24,889			22,099
EBITDA1,2		1,215			2,312			9,244			8,253
Adjusted EBITDA1,2		1,401			2,380			7,645			7,569
Adjusted EBIT1,2		(391	)		1,391			2,114			4,173
Net income (loss) before income taxes		(860	)		1,071			2,652			3,993
Net income (loss) per share
Basic		(0.00	)		0.05			0.04			0.09
Diluted		(0.01	)		0.04			0.03			0.08
1 Adjusted for stock based compensation, foreign exchange (gain) loss, and other income 2 See Financial Measures Reconciliations below

 

Zedcor recorded $5,799 and $24,889 of revenue for the three and twelve months ended December 31, 2023. This compares to $6,415 and $22,099 of revenue from for the three and twelve months ended December 31, 2022. The revenue growth of 13% for the year is the result of a larger fleet of security towers located throughout the Company's six service centers in Canada. Revenue for the year grew despite pipeline construction projects for the Company's two largest customers winding down throughout 2023. A number of the security towers which were returned had been continually providing reliable security services to two different customers since 2017 without being returned to the Company for service. Once returned, Zedcor was able to repair and upgrade the returned towers, which drove costs higher in the second half of the year, while also diversifying and growing its customer base both geographically and across different industries.

Adjusted EBITDA was to $1,401 and $7,645 for the three and twelve months ended December 31, 2023, compared to $2,380 and $7,569 for the three and twelve months ended December 31, 2022. This represented a growth of 1% for the twelve months ended December 31, 2023.

The Company's security and surveillance services saw increased revenues and EBITDA for the twelve months ended December 31, 2023 compared to 2022 due largely to increased customer demand of its larger fleet of MobileyeZ security towers. The increased revenue was offset by: 1) reduced security guard revenue; and 2) reduced revenue from a two large pipeline construction projects that were completed in the second half of 2023. In addition, in Q4 2023, the Company's revenue at its two Alberta, Canada equipment centers saw reduced revenues due to inclement weather which delayed the start of construction projects for some of the Company's customers. A majority of the security towers returned from the pipeline construction project have been rented to new or existing customers across Canada and, therefore, reduced the Company's customer and industry concentration risks. Utilization for the Company's fleet of security towers averaged 82% in Q4 2023, which is a low point for the Company. Subsequent to the end of the year, utilization rebounded and was over 90% for the Company's fleet of Electric MobileyeZ^TM. The Company's US based operations also ramped up subsequent to the end of the year which reduced the negative impact on adjusted EBITDA.

Zedcor exited the period with 825 MobileyeZ^TM security towers which was an increase of 319 when compared to December 31, 2022. Of the 825 units, 50 are located in Zedcor's Houston, Texas service center.

Financial and operational highlights for the three and twelve months ended December 31, 2023 include:

• For the twelve months ended December 31, 2023 net income before tax was $2,652 compared to net income before tax of $3,993 for the twelve months ended December 31, 2022. The decrease in net income year over year is directly attributable to: 1) two of the Company's largest customers wrapping up pipeline construction projects during the second half of the year and 2) USA expansion costs, which totaled $721, negatively impacted net income before tax. Of the $721 in USA expansion costs, approximately 70% are one time costs related to expansion, setup of manufacturing operations and legal fees. Zedcor still remained profitable during 2023 due to: 1) a larger fleet of towers and strong customer demand which drove utilization and, in turn, revenues; and 2) $2,159 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 received $2,159 for the second anniversary payment.

• Continued traction across Ontario. The Company expanded to Ottawa in Q2 2022 and Toronto in Q3 2022. As at December 31, 2023, approximately 40% of the Company's MobileyeZ security tower fleet is located in Ontario. This represents a growth of 28% from the start of the year. The Company's intentions to diversify its geographical footprint and grow its customer base is yielding results. We are continuity to see strong demand for the Company's services in Eastern Canada and additional security towers will continue to be delivered to Ontario and Manitoba in 2024.

• Diversification away from the Company's core pipeline construction customers. As the Company increases its fleet of MobileyeZ and expands geographically, our risk related to customer concentration has decreased. For the three-month period ended December 31, 2023, 12% of the Company's revenues were generated from its top 3 customers, down from 69% over the three-month period ended December 31, 2022. While the revenue from the top three customers decreased by 57%, security tower revenue decreased by only 3% for Q4 2023 compared to Q4 2022. Zedcor's services are customer and industry agonistic and we continued to see that in 2023 as we were able to diversify our customers across the construction industry and into retail security.

• Expansion into retail security with a leading North American home improvement retailer. After a three-month pilot program which began in June 2023, with locations tested in British Colombia, Southern Alberta, and Southern Ontario, Zedcor entered into a master rental services agreement with to provide MobileyeZ^TM security towers with 24/7 Live, Verified Video Monitoring^TM at numerous locations across Canada until September 2026. The number of locations that we are servicing has expanded subsequent to December 31, 2023.

• Award of Ontario O-Train construction mobile security project. Sites being secured include equipment storage yards, light maintenance and storage facilities and five LRT stations under construction on the O-Train West Extension. As at December 31, 2023 the Company has 24 MobileyeZ^TM security towers deployed with anticipated peak demand for this project which is expected to be completed in late 2026.

• The Company continued to attract new customers across Canada. For the 3 months ended December 31, 2023, the Company provided services to more than 50 new customers. For the 12 months ended December 31, 2023, the Company has added over 190 new customers.

• On track US expansion. In Q3 2023 the Company leased a facility and hired its first employee in the US. In addition, the Company has shipped a small number of security towers for research & development purposes to help ensure supply targets are met for its 2024 expansion program. Zedcor exited the year with 50 MobileyeZ^TM, obtained its Texas security license, continued positive business development with both existing Canadian customers with operations in the US and potential US based customers, hired sales people for the Houston market and generated its first US revenue in Q4 2023.

• The Company continued to manage its supply chain and logistics. Orders were proactively placed for light tower materials, cameras and communication equipment for the Company's 2024 capital program. Zedcor also started manufacturing operations out of its Houston facility in order to resolve bottle necks related to light tower assembly. By addressing this bottleneck, the Company can ramp up production to meet anticipated customer demand for the expansive US market. This will also allow the Company to control its capital costs, while designing innovative solutions in order to proactively meet customer needs. Additional security products will be constructed based on customer demand, expansion plans into other strategic markets in Canada and the USA, and availability of capital.

SELECTED QUARTERLY FINANCIAL INFORMATION

(Unaudited - in $000s)		Dec 31 2023			Sept 30 2023				June 30 2023				Mar 31 2023				Dec 31 2022					Sept 30 2022				Jun 30 2022				Mar 31 2022
Revenue		5,799			6,431				6,216				6,443				6,415					5,797				5,256				4,631
Net income (loss)		(860	)		288				2,472				752				3,076					966				1,528				428
Adjusted EBITDA¹		1,401			2,285				1,824				2,135				2,380					2,121				1,694				1,373
Adjusted EBITDA per share - basic¹		0.02			0.03				0.02				0.03				0.04					0.03				0.02				0.02
Net income (loss) per share
Basic		(0.00	)		0.00				0.03				0.01				0.05					0.01				0.02				0.01
Diluted		(0.01	)		0.00				0.03				0.01				0.04					0.01				0.02				0.01
Adjusted free cash flow¹		482			4,664				968				978				1,931					2,076				(292		)		1,216
1 See Financial Measures Reconciliations below

 

LIQUIDITY AND CAPITAL RESOURCES

The following table shows a summary of the Company's cash flows by source or (use) for the twelve months ended December 31, 2023 and 2022:

		Twelve months ended December 31
(in $000s)		2023			2022			$ Change			% Change
Cash flow from operating activities		9,886			6,190			3,696			60%
Cash flow used in investing activities		(13,451	)		(8,607	)		(4,844	)		56%
Cash flow from financing activities		4,468			2,880			1,588			55%

 

The following table presents a summary of working capital information:

		Twelve months ended December 31
(in $000s)		2023			2022			$ Change			% Change
Current assets		7,286			7,542			(256	)		(3%)
Current liabilities *		9,451			7,379			1,072			15%
Working capital		(2,165	)		163			(2,328	)		(1,428%)
*Includes $3.8 million of debt and $2.4 million of lease liabilities in 2023 and $2.2 million of debt and $1.8 million of lease liabilities in 2022

 

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 December 31, 2023			Outstanding as at December 31, 2022
Term Loan		5.15%			Oct 2026			6,100			3,538			4,748
Revolving Equipment Financing		Prime + 2.00%			Revolving			15,000			13,096			5,799
Authorized Overdraft		Prime + 1.50%			Revolving			3,000			-			-
											16,634			10,547
Current portion											(3,788	)		(2,198	)
Long term debt											12,846			8,349

 

On June 6, 2023, the Company entered into a second amending agreement ("Second Amended Financing Agreement") which increased the Company's equipment financing from $6.0 million to $15.0 million. As at December 31, 2023, the Second Amended Financing Agreement provides the Company with the following:

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.

2. A $15.0 million revolving equipment financing facility ("Revolving Equipment Financing"). The Company is able to draw on this facility at any time for up to 100% 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 December 31, 2023 the Prime Interest Rate was 7.20% and the interest rate on the Revolving Equipment Financing was 9.20%. As the Company pays down the Revolving Equipment Financing, it can borrow back up to the facility maximum of $15.0 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 December 31, 2023 the Prime Interest Rate was 7.20% and the interest rate on the Revolving Equipment Financing was 8.70%.

The Second 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 quarterly financial covenant requirements, calculated on a trailing twelve month basis:

• a debt servicing covenant of no less than 1.25 to 1.00; and

• a funded debt to EBITDA covenant of no more than 3.00 to 1.00.

As at December 31, 2023, the Company is in compliance with its financial covenant requirements. The debt servicing ratio as calculated based on the Second Amended Financing Agreement was 2.15 to 1.00 and the funded debt to EBITDA was 1.91 to 1.00.

CREDIT RISK

The Company extends credit to customers, primarily comprised of pipeline construction companies and construction companies, in the normal course of its operations. Historically, bad debt expenses have been limited to specific customer circumstances. However, the volatility in economic activity may result in higher collection risk on trade receivables. The Company has reviewed its outstanding accounts receivable as at December 31, 2023 and believes the expected loss provision is sufficient.

OUTLOOK

Zedcor continues to execute its long-term strategy of growing its technology enabled security services across North America. Zedcor continues to effectively use a mix of cash flow and debt to buil

FAQ

What were Zedcor Inc.'s Q4 2023 revenues?

Zedcor Inc.'s Q4 2023 revenues were $5.8 million.

What was the adjusted EBITDA for Zedcor Inc. in Q4 2023?

Zedcor Inc. generated an adjusted EBITDA of $1.4 million in Q4 2023.

How many customers did Zedcor Inc. add post two large pipeline security projects?

Zedcor Inc. added over 190 customers post two large pipeline security projects.

What is Zedcor Inc.'s expectation regarding revenue from its MobileyeZTM security tower fleet?

Zedcor Inc. expects to achieve record monthly revenue from its MobileyeZTM security tower fleet.

What is the company's plan for manufacturing security towers in the US by Q3 2024?

Zedcor Inc. intends to manufacture 50 or more security towers a month starting in Q3 2024 in the US.