SOURCE: Quest Solution, Inc.

Quest Solution, Inc.

November 12, 2015 16:53 ET

Quest Solution, Inc. Reports Profitable Third Quarter

Third Quarter Adjusted EBITDA of $1.1 Million, Cash Flow From Operations of $2.89 Million, Positive as Expected and Growth Continues

EUGENE, OR--(Marketwired - Nov 12, 2015) - Quest Solution, Inc., the "Company" (OTCBB: QUES), today announced financial results for the third quarter and nine months ended September 30, 2015.

Third Quarter and Subsequent Highlights

  • Net revenues of $16.7 million, an increase of 83.5% compared to the prior year;

  • Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization ("Adjusted EBITDA") of $1,127,697, positive as expected, and adjusted for stock-based compensation; 

  • Net income of $697,356, or $0.02 per share;

  • Cash flow from operations of $2.89 million;

  • Completed acquisition of ViascanQdata and named Gilles Gaudreault as Chief Executive Officer of the Company;

  • Expanded component and service providers for "Total Solution as a Service" offering;

  • Streamlined capital structure and reduced ongoing interest expense through settlement of debt with a former Company executive; and

  • Year-to-date, the Company has secured approximately $4.3 million in new long-term service contracts, increasing the deferred revenue and providing a leading indicator of future revenue.

Third Quarter Select Financial Results

   
  For the Three Months Ended
  September 30, 2015   September 30, 2014
Revenues, net $ 16,711,339     $ 9,084,462  
Gross profit $ 3,187,795     $ 1,664,587  
  Gross profit margin   19.08 %     18.3 %
Interest expense $ (274,349 )   $ (375 )
Net income $ 697,356     $ 62,786  
Earnings per share - basic $ 0.02     $ 0.00  
Earnings per share - diluted $ 0.02     $ 0.00  
Weighted average shares outstanding - basic   36,637,523       33,660,416  
Weighted average shares outstanding - diluted   39,630,570       50,445,416  
Deferred revenue, net $ 1,023,203     $ 0  
Adjusted EBITDA $ 1,127,697     $ 124,358  
               

"This was an important strategic and tactical quarter for Quest Solution, highlighted by the acquisition of ViascanQdata which was effective October 1, 2015, and augmented by strong financial results, including our first GAAP profit," commented Gilles Gaudreault, new Chief Executive Officer of the Company. "We anticipate that the new Quest Solution will grow organically and deliver expanded profit margins as we strategically shift our revenue mix more toward bar code consumables and media and recurring services. We expect to have ample cross-selling opportunities within our existing customer base, and together, believe we are positioned to bid for and win larger projects with more significant global customers who want to work with a single vendor prepared to meet their expanding needs. I am excited about the future for Quest Solution."

"For the second quarter in a row, we delivered positive Adjusted EBITDA," added Tom Miller, President of the Company. "This quarter benefited from a customer requesting earlier delivery of certain orders, resulting in an uptick in revenues. We expect the fourth quarter to normalize. Longer-term, we are focused on unlocking synergies related to the ViascanQdata acquisition, and are already benefitting from a consolidated sales organization. Today, we have over 30 sales personnel in the field, compared with 17 at the beginning of the year, and we believe that this organization enables us to service the business opportunities coming our way."

Third Quarter Financial Results

Revenue

Revenues for the three month period ended September 30, 2015 increased 83.5% to $16.7 million compared to $9.1 million for the three months ended September 30, 2014. This increase was due primarily to the acquisition of Bar Code Solutions ("BCS") in November 2014 and the Company's additional sales activity in the third quarter of 2015. Third quarter net revenues of $16.7 million represented an increase of 23% over second quarter ending June 30, 2015.

Gross Margin

Gross margin percent increased slightly over 2014 after adjusting for changes in related party COG's charges that occurred in 2014 and changes to deferral of hardware and software maintenance contracts which began in 2015.

Net Income

Net income for the three month period ended September 30, 2015 was $697,000 compared to $63,000 for the three months ended September 30, 2014.

Adjusted EBITDA

The Company's operating expenses during both quarters ended September 30, 2015 and 2014 included non-cash expenses including depreciation, amortization of acquisition intangibles and stock-based compensation for employee and director stock options. Without the effect of these non-cash expenses, Adjusted EBITDA for the quarter ended September 30, 2015 was approximately $1.1 million compared to Adjusted EBITDA of $124,385 for the quarter ended September 30, 2014. 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.

Year-to-Date Financial Results

Revenue

Net Revenues for the nine month period ended September 30, 2015 increased 57% to $40.9 million compared to $26.1 million for the nine months ended September 30, 2014. This increase was due primarily to the acquisition of BCS in November 2014 as well as additional synergies and organic growth of the Company. The unaudited pro-forma revenue of the Company and BCS for 2014 would have been approximately $39 million, so in comparing the two companies year over year, there was an approximate 5% increase (or approximately $2 million) due to organic growth of both companies.

Gross Margin

"Gross margin percent increased slightly over 2014 after adjusting for changes in related party COG's charges that occurred in 2014 and changes to deferral of hardware and software maintenance contracts which began in 2015.

Net Income

Net loss for the nine month period ended September 30, 2015 was $10,000 compared to net income of $47,000 for the nine months ended September 30, 2014. The decrease in net income is attributable to an increase in gross profit offset by an increase in interest expense of $1.1 million and higher operating expenses.

Adjusted EBITDA

The Company's operating expenses during both nine month periods ended September 30, 2015 and 2014 included non-cash expenses including depreciation, amortization of acquisition intangibles and stock-based compensation for employee and director stock options. Without the effect of these non-cash expenses, Adjusted EBITDA for the nine months ended September 30, 2015 was approximately $1.4 million compared to Adjusted EBITDA of $150,482 for the nine months ended September 30, 2014. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP financial 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 $8.1 million and deferred costs of $7.1 million. This net deferred revenue of $1.0 million at September 30, 2015 will be recognized in income over the term of the contracts, normally one to five years, with three years being the average term.

Backlog

The Company's backlog of signed, contracted orders at September 30, 2015 was approximately $3.2 million. The backlog reflects orders expected to be delivered in the fourth quarter.

2015 Outlook

The Company modified its full-year 2015 financial guidance to include the acquisition of ViascanQdata. Management now expects:

  • Pro forma full-year revenue of approximately $60-65 million, inclusive of the contribution of three months from ViascanQdata, which was acquired by Quest Solution, effective October 1, 2015, and accounting for retail rollouts that were accelerated, benefitting the third quarter.

  • Gross margin as a percentage of sales for the full year 2015 to continue to show slight improvement as the Company exits the year.

  • Management anticipating generating positive Adjusted EBITDA in the third and fourth quarter as well, with improvement each quarter for the remainder of the year.

"We believe that we are making good progress on the integration of ViascanQdata into the Company's existing operations, and working to unlock the synergies we have identified," added Mr. Gaudreault. "We expect to provide our outlook for 2016 in March, when we report our fourth quarter results of operations and have the benefit of a few months as a combined entity."

About Quest Solution, Inc.

Quest Solution, Inc. serves as a national mobility and data collection systems integrator with a focus on design, delivery, deployment and support of fully integrated mobile solutions. The Company takes a consultative approach by offering end to end solutions that include hardware, software, communications and full lifecycle management services. The highly tenured team of professionals simplifies the integration process and delivers proven problem solving solutions backed by numerous customer references.

Additional information about the Company is available at http://questsolution.com

Information about Forward-Looking Statements

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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 the Company'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, and other information that may be detailed from time-to-time in the Company's filings with the United States Securities and Exchange Commission (the "SEC"). Examples of such forward looking statements in this release include statements regarding growth in our parts and vehicle sales and increases in our ability to produce new products. For a more detailed description of the risk factors and uncertainties affecting the Company, please refer to the Company's recent SEC filings, which are available at http://www.sec.gov. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 
Quest Solution, Inc.
Consolidated Combined Statements of Earnings
                       
  For the three months     For the nine months  
  ending September 30     ending September 30  
  2015     2014     2015     2014  
REVENUES                              
  Gross Sales $ 16,961,830     $ 9,120,927     $ 41,405,032     $ 26,287,892  
  Less sales returns, discounts, & allowances   (250,491 )     (36,465 )     (460,108 )     (147,024 )
Total Revenues   16,711,339       9,084,462       40,944,924       26,140,868  
                               
Cost of goods sold                              
  Cost of goods sold   13,523,544       7,072,614       32,031,714       20,086,597  
  Cost of goods sold, related party   -       347,261       -       1,041,784  
Cost of goods sold, related party   13,523,544       7,419,875       32,031,714       21,128,381  
                               
Gross Profit   3,187,795       1,664,587       8,913,210       5,012,487  
                               
Operating expenses                              
  General and administrative   597,269       222,857       2,507,423       723,447  
  Salary and employee benefits   1,773,129       1,252,445       4,952,181       3,895,458  
  Depreciation and amortization   24,052       7,067       69,916       17,889  
  Stock compensation   63,800       54,130       522,677       84,215  
  Professional fees   92,359       110,005       288,922       377,769  
Total operating expenses   2,550,609       1,646,504       8,341,119       5,098,778  
                               
Income (loss) from operations   637,186       18,083       572,091       (86,291 )
                               
Other income (expenses):                              
  Gain on debt settlement   -       29,999       -       181,948  
  Loss on license settlement   -       -       -       (93,578 )
  Loss on note receivable settlement   -       -       -       (18,995 )
  Interest expense   (274,349 )     (375 )     (1,012,415 )     (1,375 )
  Other income   (39,981 )     15,079       55,709       65,294  
  Gain on intangible license settlement   374,500       -       374,500       -  
Total other income (expenses)   60,170       44,703       (582,206 )     133,294  
                               
Net income (loss) $ 697,356     $ 62,786     $ (10,115 )   $ 47,003  
                               
Net income (loss) per share - basic $ 0.02     $ 0.00     $ (0.00 )   $ 0.00  
Net income (loss) per share - diluted $ 0.02     $ 0.00     $ (0.00 )   $ 0.00  
                               
Weighted average number of common shares outstanding - basic   36,637,523       33,660,416       35,702,188       33,334,616  
Weighted average number of common shares outstanding - diluted   39,630,570       50,445,416       39,630,570       50,119,616  
 
 
 
Quest Solution, Inc.
Consolidated Combined Balance Sheets
  As of  
  Sep. 30, 2015     Dec. 31, 2014  
ASSETS              
Current assets              
  Cash $ 264,943     $ 233,741  
  Accounts receivable, net of allowances of $20,249 and $62,800, respectively   12,900,238       9,099,229  
  Inventory   481,282       606,231  
  Prepaids   936,064       191,498  
  Other current assets   457,951       377,060  
    Total current assets   15,040,478       10,507,759  
               
  Fixed assets, net of accumulated depreciation of $1,838,350 and $1,781,086, respectively   186,118       206,662  
  Deferred tax asset   1,299,417       1,299,417  
  Goodwill   14,101,306       14,101,306  
  Trade name   2,700,000       2,700,000  
  Intangibles, net   4,218       466,870  
  Customer Relationships   4,390,000       4,390,000  
  Other assets   591,599       317,304  
               
Total assets $ 38,313,136     $ 33,989,318  
               
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities              
  Accounts payable and accrued liabilities $ 11,180,064     $ 7,406,146  
  Accrued interest and liabilities, related party   293,561       51,806  
  Line of credit   1,247,634       1,819,345  
  Advances, related party   400,000       50,000  
  Accrued payroll and sales tax   2,026,272       917,079  
  Deferred revenue, net   1,023,203       297,277  
  Current portion of note payable   150,000       310,000  
  Notes payable, related parties, current portion   6,912,498       4,201,650  
  Other current liabilities   748,583       548,050  
    Total current liabilities   23,981,815       15,601,353  
               
Long term liabilities              
  Note payable, related party, net of debt discount   11,708,947       17,007,175  
  Deferred tax liability   -       29,783  
  Other long term liabilities   296,572       157,495  
Total liabilities   35,987,334       32,795,806  
               
Stockholders' equity              
  Preferred stock; $0.001 par value; 25,000,000 shares authorized 500,000 and 500,000 shares   500       500  
  Common stock; $0.001 par value; 100,000,000 shares authorized; 37,613,978 and 35,029,495 shares outstanding of September 30, 2015 and December 31, 2014, respectively.   37,613       35,029  
  Additional paid-in capital   19,039,961       17,900,139  
  Accumulated (deficit)   (16,752,272 )     (16,742,156 )
    Total stockholders' equity   2,325,802       1,193,512  
Total liabilities and stockholders' equity $ 38,313,136     $ 33,989,318  
               
               
               
Quest Solution, Inc.
Unaudited
Reconciliation of GAAP Measures to Non-GAAP Measures
                       
  Three Months Ending September 30,     Nine Months Ending September 30,  
  2015     2014     2015     2014  
EBITDA Calculation:                              
                               
Net (loss) Income $ 697,356     $ 62,786     $ (10,115 )   $ 47,003  
                               
Depreciation & Amortization $ 24,052     $ 7,067     $ 69,916     $ 17,889  
                               
Income Tax (benefit) $ -     $ -     $ -     $ -  
                               
Interest Expense $ 274,349     $ 375     $ 1,012,415     $ 1,375  
                               
EBITDA $ 995,757     $ 70,228     $ 1,072,216     $ 66,267  
                               
Adjusted EBITDA Calculation:                              
                               
EBITDA $ 995,757     $ 70,228     $ 1,072,216     $ 66,267  
                               
Stock and Warrants Issued for Services         $ -                  
                               
stock compensation $ 131,940     $ 54,130     $ 336,896     $ 84,215  
                               
Adjusted EBITDA $ 1,127,697     $ 124,358     $ 1,409,112     $ 150,482  
                               
Net Revenue $ 16,711,339     $ 9,084,462     $ 40,944,924     $ 26,140,868  
                               
EBITDA % of Net Revenue   6.75 %   1.37 %     3.44 %     0.58 %
                               

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