Quest Solution Reports Second Quarter Results
Revenues Increase 39% to $18.9 Million; Company Continues to Improve Balance Sheet
/EINPresswire.com/ -- EUGENE, OR -- (Marketwired) -- 08/23/16 -- Quest Solution, Inc, "The Company" (OTCQB: QUES), today announced financial results for the three and six months ended June 30, 2016.
Second Quarter and Subsequent Highlights
- Net revenues of $18.9 million, an increase of 39% compared to the prior year period
- Cash flow from operations for the first six months of 2016 of $2.6 million compared to $1.6 million for the first six months of 2015
- Strengthened the balance sheet by converting approximately $4.5 million of outstanding debt into new Series C Preferred Stock
- Additional debt reductions of $0.6 million from forbearances
- Continuation of the restructuring plan that will result in additional cost savings of $0.9 million
- Net loss for the three months ended June 30, 2016 of $4.4 million
- Adjusted EBITDA for the three months ended June 30, 2016 of $0.4 million representing 2.1% of net revenues, an improvement of $0.5 million over Q1-2016
Second Quarter and Year-to-Date 2016 - Select Financial Results
(In thousands, except share and per share data)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/2016 6/30/2015 6/30/2016 6/30/2015
Revenues $ 18,896,354 $ 13,557,615 $ 37,290,916 $ 24,233,585
Gross profit $ 3,971,164 $ 3,330,810 $ 7,789,178 $ 18,508,170
Gross profit
margin 21.0% 24.6% 20.9% 23.6%
Net loss $ (4,317,518) $ (285,449) $ (5,820,247) $ (707,531)
Adjusted EBITDA $ 399,597 $ 600,912 $ 247,870 $ 638,222
EPS - basic $ (0.12) $ (0.01) $ (0.16) $ (0.02)
Weighted average
shares outstanding
- basic 36,842,209 35,414,484 36,885,105 35,224,128
Please refer to the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2015, and the financial tables included below for the Company's GAAP financial statements and a reconciliation of GAAP results to Non-GAAP measures.
"We continue to grow our customer base and deepen our market penetration, as revenues increased by 39%," stated Gilles Gaudreault, Chief Executive Officer of Quest Solution, Inc. "We remain focused on driving sales and realizing cost efficiencies across the enterprise, and I am encouraged with our progress so far this year."
In the second quarter, the Company took significant action to reduce executive overhead and implemented further cost rationalization initiatives by initiating the transfer of the Montreal ribbon production facility to Ajax, Ontario. In effect, the Montreal facility will become a distribution center for the northeast market and this decision will result in eventual savings of $0.3 million on an annualized basis. This move will be completed in the later part of the third quarter. In addition, the Company will further reduce its headcount to right-size the Company's cost structure, reduce its rental expenses, and eliminate certain redundancies caused by the multiple past business acquisitions. The cost savings from the headcount reduction is $0.6 million on an annualized basis. As a result, the Company recorded a restructuring charge of $0.6 million in the second quarter to realize the streamlining initiatives. The streamlining efforts will continue for the second half of the year as well. In addition, for the period ended June 30, 2016, the goodwill in relation to the Company's investments in ViascanQdata was impaired by $2.3 million. The impairment charge is non cash and was driven by certain economic factors related to the operations of ViascanQdata. The Company expects to retain the services of an independent valuation firm to determine the fair value of these identifiable intangible assets acquired as part of the business acquisition.
"We also took proactive steps to improve our balance sheet and capital structure," added Mr. Gaudreault. "The conversion of $4.5 million in debt into a new Series C Preferred Stock and the forbearance of $0.6 million in notes helped to reduce the debt load and improve the debt to equity ratio of the Company. The debt reduction efforts were completed in the latter part of June, so we expect to report reductions in our interest expense in the second half of the year. With an increasingly solid balance sheet, a streamlined capital structure and strong sales and delivery organizations, we are well-positioned to grow our business profitably."
Second Quarter and Year-to-Date Financial Results
Revenues
Revenues for the three months ended June 30, 2016 increased 39% to $18.9 million compared to $13.6 million for the three months ended June 30, 2015. Approximately $3.9 million of the increase came from the ViascanQData acquisition and the balance of the increase was due to significant enterprise account wins that occurred within the quarter. Revenue for both periods was generated from the sales of hardware, software, consumables (labels, tags and ribbons) and related services by the Company to its customers. Net Revenues for the six-month period ended June 30, 2016 increased 54% to $37.3 million compared to $24.2 million for the six months ended June 30, 2015. Approximately $7.4 million of the increase came from the ViascanQData acquisition.
Gross Margin
Gross profit margin for the three months ended June 30, 2016 was 21.0% of revenue compared to 24.6% for the three months ended June 30, 2015 with the decrease the result of the product and customer mix. For the first six months of 2016, gross profit margin was 20.9% of total revenues compared to 23.6% in the first six months of 2015.
Net loss
Net loss for the three-month period ended June 30, 2016 was $4.4 million compared to $0.3 million for the three months ended June 30, 2015. The increase in the net loss is primarily attributable to a goodwill impairment charge of $2.3 million related to the ViascanQdata acquisition, the restructuring charge of $0.6 million related to the cost reduction program and $0.8 million from non-cash charges of amortization and interest costs. Net loss for the six-month period ended June 30, 2016 was $5.8 million compared to $0.7 million for the six months ended June 30, 2015. The increase in net loss is attributable to same factors as for the quarter.
EBITDA
The company's operating expenses during both the three and six month periods ended June 30, 2016 and 2015 included non-cash expenses including depreciation, amortization of acquisition intangibles and stock-based compensation for employee and director stock options and one-time non recurring costs.
Without the effect of these non-cash expenses, the Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization ("Adjusted EBITDA") for the three months ended June 30, 2016 was $0.4 million compared to $0.6 million for the three months ended June 30, 2015. Adjusted EBITDA for the six months ended June 30, 2016 was $0.3 million compared to $0.6 million for the six months ended June 30, 2015.
Please refer to the financial tables included below for a reconciliation of generally accepted accounting principles in the United States ("GAAP") to non-GAAP financial results. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP results.
Balance Sheet Summary
Net deferred revenue consists of prepaid third party hardware service agreements, software maintenance service contracts and the related costs and expenses recorded net of the revenue charged. As stated in the footnotes to the financials, the company had deferred revenue of $7.8 million and deferred costs of $6.4 million. This net deferred revenue of $1.4 million at June 30, 2016 will be recognized in income over the term of the contracts, normally one to five years, with three years being the average term.
On June 17, 2016, the Company completed the conversion of approximately $4.5 million of outstanding debt into the newly created Series C Preferred Stock, $0.001 par value at a conversion rate of one share for each $1.00 of principal and accrued but unpaid interest due on the debt.
About Quest Solution, Inc.
Quest Solution is a Specialty Systems Integrator focused on Field and Supply Chain Mobility. We are also a manufacturer and distributor of consumables (labels, tags, and ribbons), RFID solutions, and barcoding printers. Founded in 1994, Quest is headquartered in Eugene, Oregon, with offices in the United States and Canada.
Rated in the Top 1% of global solution providers, Quest specializes in the design, deployment and management of enterprise mobility solutions including Automatic Identification and Data Capture (AIDC), Mobile Cloud Analytics, RFID (Radio Frequency Identification), and proprietary Mobility software. Our mobility products and services offering is designed to identify, track, trace, share and connect data to enterprise systems such as CRM or ERP solutions. Our customers are leading Fortune 500 companies from several sectors including manufacturing, retail, distribution, food / beverage, transportation and logistics, health care and chemicals / gas / oil.
Investor Contact:
Joey Trombino
CFO
(514) 744-1000 ext. 1228
jtrombino@questsolution.com
Information about Forward-Looking Statements
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995. Statements in this press release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. This release contains "forward-looking statements" that include information relating to future events and future financial and operating performance. The words "may," "would," "will," "expect," "estimate," "can," "believe," "potential" and similar expressions and variations thereof are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to: fluctuations in demand for Quest Solution, Inc.'s products, the introduction of new products, the Company's ability to maintain customer and strategic business relationships, the impact of competitive products and pricing, growth in targeted markets, the adequacy of the Company's liquidity and financial strength to support its growth, the Company's ability to manage credit and debt structures from vendors, debt holders and secured lenders, the Company's ability to successfully integrate its acquisitions and other information that may be detailed from time-to-time in Quest Solution Inc.'s filings with the United States Securities and Exchange Commission. Examples of such forward looking statements in this release include, among others, statements regarding business growth, driving sales, realization of cost efficiencies and cost rationalization initiatives. For a more detailed description of the risk factors and uncertainties affecting Quest Solution, Inc. please refer to the Company's recent Securities and Exchange Commission filings, which are available at http://www.sec.gov. Quest Solution, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by law.
Financial Tables Follow
QUEST SOLUTION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
For the three months For the six months
ending June 30, ending June 30,
2016 2015 2016 2015
Revenues
Total Revenues 18,896,354 13,557,615 37,290,916 24,233,585
Cost of goods sold
Cost of goods sold 14,925,190 10,226,805 29,501,738 18,508,170
----------- ----------- ----------- -----------
Gross profit 3,971,164 3,330,810 7,789,178 5,725,415
Operating expenses
General and
administrative 730,360 600,008 1,624,617 1,456,608
Salary and employee
benefits 2,859,411 2,469,891 5,985,812 3,988,791
Depreciation and
amortization 526,055 20,368 1,021,642 45,864
Professional fees 217,672 108,083 447,127 196,563
Goodwill impairment 2,300,000 - 2,300,000 -
----------- ----------- ----------- -----------
Total operating expenses 6,633,498 3,198,400 11,379,198 5,687,876
----------- ----------- ----------- -----------
Income (loss) from
operations (2,662,334) 132,410 (3,590,020) 37,539
----------- ----------- ----------- -----------
Other income (expenses):
Restructuring expenses (569,261) - (569,261) -
Gain on foreign
currency 151,978 - 492,490 -
Interest expense (1,133,189) (342,794) (2,048,578) (738,066)
Other expenses - (38,093) (166) (38,485)
Other income 4,075 27,350 4,075 95,690
----------- ----------- ----------- -----------
Total other expenses (1,546,397) (353,537) (2,121,440) (680,861)
----------- ----------- ----------- -----------
Net Income Before Income
Taxes (4,208,731) (221,127) (5,711,460) (643,322)
Provision for Income
Taxes (108,787) (64,322) (108,787) (64,209)
----------- ----------- ----------- -----------
Net loss $(4,317,518) $ (285,449) $(5,820,247) $ (707,531)
=========== =========== =========== ===========
Other Comprehensive Loss
Foreign Currency
Adjustments (54,526) - (482,077) -
----------- ----------- ----------- -----------
Comprehensive Loss from
Operations $(4,372,044) $ (285,449) $(6,302,324) $ (707,531)
=========== =========== =========== ===========
QUEST SOLUTION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As of
December 31,
June 30, 2016 2015
ASSETS
Current assets
Cash $ 492,141 $ 842,715
Restricted Cash 774,098 690,850
Accounts receivable, net 10,249,173 11,409,258
Inventory, net 3,419,397 2,731,612
Prepaid expenses 1,709,557 730,591
Deferred tax asset, current portion 160,545 160,545
Other current assets 307,731 396,775
------------- -------------
Total current assets 17,112,642 16,962,346
Fixed assets, net of accumulated
depreciation of $2,133,289 and $1,962,497,
respectively 1,361,275 1,450,660
Deferred tax asset 433,997 433,997
Goodwill 18,952,024 21,252,024
Trade name 3,224,981 3,513,481
Intangibles, net - 8,250
Customer Relationships 6,998,002 7,560,352
Other assets 597,979 689,347
------------- -------------
Total assets $ 48,680,900 $ 51,870,457
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities $ 22,815,436 $ 19,849,978
Accounts payable and accrued liabilities,
related party 299,535 177,776
Line of credit 3,823,989 5,450,657
Advances, related party 200,000 400,000
Accrued payroll and sales tax 2,463,005 1,598,335
Deferred revenue, net 946,023 742,976
Current portion of note payable 1,551,789 1,255,477
Notes payable, related parties, current
portion 8,183,439 7,146,820
Other current liabilities 286,200 433,784
------------- -------------
Total current liabilities 40,569,416 37,055,803
Long term liabilities
Note payable, related party, net of debt
discount 8,936,204 13,910,768
Long term portion of note payable 76,638 569,477
Deferred revenue, net 454,812 533,874
Other long term liabilities 468,119 271,902
------------- -------------
Total liabilities 50,505,189 52,341,824
------------- -------------
Stockholders' deficit
Series A Preferred stock; $0.001 par value;
1,000,000 shares authorized 0, outstanding
as of June 30, 2016 and December 31, 2015,
respectively. - -
Series B Preferred stock; $0.001 par value;
1 share authorized and 1 share outstanding
as of June 30, 2016 and December 31, 2015,
respectively, representing 5,200,000 votes. 5,200 5,200
Series C Preferred stock; $0.001 par value;
15,000,000 shares authorized and 4,882,560
shares outstanding as of June 30, 2016 and
0 shares outstanding at December 31, 2015,
with a dividend of $0.06 per share payable
quarterly. 4,883 -
Common stock; $0.001 par value; 100,000,000
shares authorized; 35,985,478 and
36,871,478 shares outstanding of June 30,
2016 and December 31, 2015, respectively. 35,985 36,871
Additional paid-in capital 22,899,636 17,943,798
Accumulated Other Comprehensive Loss (482,077) -
Accumulated deficit (24,287,916) (18,457,236)
------------- -------------
Total stockholders' deficit (1,824,289) (471,367)
------------- -------------
Total liabilities and stockholders' deficit $ 48,680,900 $ 51,870,457
============= =============
QUEST SOLUTION, INC.
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)
Three Months Ending June
30, Six Months Ending June 30,
-------------------------- --------------------------
2016 2015 2016 2015
EBITDA Calculation:
Net loss (4,317,518) (285,449) (5,820,247) (707,531)
Income Taxes 108,787 64,322 108,787 64,322
Depreciation &
Amortization 526,055 20,368 1,021,642 45,864
Goodwill impairment 2,300,000 - 2,300,000 -
Interest Expense 1,133,189 342,794 2,048,578 738,066
Non-admissible
foreign exchange
gain (15,321) - (251,251) -
------------ ------------ ------------ ------------
EBITDA (264,808) 142,035 (592,491) 140,721
------------ ------------ ------------ ------------
Adjusted EBITDA
Calculation:
EBITDA (264,808) 142,035 (592,491) 140,721
Non Cash stock
compensation 55,431 458,877 204,442 497,501
Restructuring
expenses 569,261 - 569,261 -
Merger related costs 16,488 - 28,188 -
One time
nonrecurring costs 23,225 - 41,470 -
------------ ------------ ------------ ------------
Adjusted EBITDA 399,597 600,912 250,870 638,222
------------ ------------ ------------ ------------
Net Revenue $ 18,896,354 $ 13,557,615 $ 37,290,916 $ 24,233,585
Adjusted EBITDA as a
% of Net Revenue 2.1% 4.4% 0.7% 2.6%
The merger related costs are fees from an independent valuation firm and legal firm which are related to the business acquisitions.
Investor Contact:
Joey Trombino
CFO
(514) 744-1000 ext. 1228
jtrombino@questsolution.com
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