SOURCE: Quest Solution, Inc.

Quest Solution, Inc.

May 16, 2017 07:30 ET

Quest Solution Reports Q1-2017 Results

Company Focus Delivers Significantly Improved Financial Performance

EUGENE, OR--(Marketwired - May 16, 2017) - Quest Solution, Inc. (OTCQB: QUES), is pleased to announce its financial results for the three months ended March 31, 2017.

Q1-2017 and Subsequent Highlights

  • Positive Operating Income of $0.1 million for Q1-2017 versus a loss of $0.7 million in Q1-2016
  • Significantly reduced Operating Expenses for Q1-2017 from $3.7 million in Q1-2016 to $2.9 million in Q1-2017 a decrease of $0.8 million or 21%
  • Substantial reduction of Net Loss from continuing operations for the three months ended March 31, 2017 bringing Net Loss down to $0.3 million, an improvement of $1.2 million compared to same period last year
  • Adjusted EBITDA for the three months ended March 31, 2017 of $0.6 million an improvement of $0.7 million, compared to same period last year
  • Appointment of Shai Lustgarten as President and CEO
   
   
First Quarter 2017- Select Financial Results from Continuing Operations(1)
 
    Three Months Ended 3/31/2017     Three Months Ended 3/31/2016  
Revenues   14,437,556     14,875,152  
Gross profit   2,991,947     2,954,168  
  Gross profit margin   20.7 %   19.9 %
Operating expenses   2,904,505     3,674,934  
Operating income   87,442     (720,766 )
Net loss from continuing operations   (331,158 )   (1,468,922 )
Adjusted EBITDA   557,557     (107,888 )
Adjusted EBITDA %   3.9 %   (0.7 %)
             
Loss per share from continuing operations - basic   (0.01 )   (0.04 )
Weighted average shares outstanding - basic   35,141,560     36,928,478  
             

Please refer to the Company's filings with the Securities and Exchange Commission, including the Company's Form 10-Q for the three months ended March 31, 2017, and the financial tables included below for the Company's GAAP financial statements and a reconciliation of GAAP results to Non-GAAP measures.

Shai Lustgarten, CEO, commented, "Q1 was a continuation of the improvement that began in Q4 with a renewed focus of the Company as a provider of supply chain and mobile solutions for the U.S. market. The results of the restructuring and consolidation programs are beginning to show up in improved company results and we believe this trend will continue throughout 2017. Sales activities with our large base of Fortune 500 enterprise accounts is strong and we are having early success with our new Route Edge software platform. In addition, the Company continues to show progress on the retiring of its supplier note, having reduced it by $1.6M or 17% during the quarter."

1All of the assets and liabilities attributable to the divestiture of Quest Solution Canada Inc. have been reclassified into the "held for disposal" asset and liability categories on the balance sheet. On the statement of operations, the financial results of Quest Solution Canada Inc. have been reclassified out of the activity from continuing operations, and disclosed separately in the category for discontinued operations.

Operating Expenses Decreased 21% Over A Year Ago
In the first quarter of 2017 the Company continued with its streamlining of operating expenses and the benefits of the restructuring and consolidation plan are being realized. The Company achieved a reduction of 21% in total operating expenses compared to the same period last year. For Q1-2017, G&A expenses, comprised of general and administrative, salary and employee benefits and professional fees, as a percentage of net revenues, were 17.1% compared to 18.6% in Q1-2016, confirming the positive results from management's targeted cost reduction programs.

Result is Adjusted EBITDA Increased to 3.9% in Q1-2017 from (0.7%) in Q1-2016
"As a result of stable revenue, improved gross margins and expense control in the first quarter of 2017, the Company realized an Adjusted EBITDA as a percentage of net revenues of 3.9%. The results were consistent with the trend that commenced in Q4-2016 and an improvement of 4.6 points from Q1-2016." "Management believes Q1-2017 demonstrates and affirms that the efforts on cost reductions are showing their effect and we believe that this trend will continue throughout 2017. We will remain focused on continuing to drive sales, creating a more favorable product and services mix to improve margins and continue to work towards additional cost efficiencies across the enterprise".

Q1-2017 Financial Results

Revenues
For the three months ended March 31, 2017 and 2016, the Company recognized $14.4 million and $14.9 million in net revenues, respectively. This slight decrease was a result of shipments being moved into Q2 because of temporary unavailability of stock at the manufacturer. We will continue to put efforts on growing our revenues by providing additional value added services.

Gross Margin
Gross profit margin for the three months ended March 31, 2017 was 20.7% of revenue compared to 19.2% for the comparative period of the prior year. The Company has been able to maintain stable gross margin even in very competitive market conditions which exemplifies its strong relationships with its customer base.

Net Loss from Continuing Operations
For the three months ended March 31, 2017 and 2016, the Company realized a net loss from continuing operations of $0.3 million compared to $1.5 million in Q1-2016. $0.8 million of the improvement was due to lower operating expenses and $0.4 million was a result of reduced interest expenses.

EBITDA
The Company's operating expenses for the three months ended March 31, 2017 and March 31, 2016 included non-cash expenses consisting of 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 March 31, 2017 was $0.6 million compared to a loss of $0.1 million for the three months ended March 31, 2016.

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 $8.8 million and deferred costs of $7.4 million. This net deferred revenue of $1.4 million at March 31, 2017 will be recognized in income over the term of the contracts, normally one to five years, with three years being the average term.

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.

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.

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, risks related to the sale of Quest Solution Canada Inc. to Viascan Group Inc. 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 revenue growth, driving sales, operational and financial initiatives, cost reduction and profitability, and simplification of operations. 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  
(UNAUDITED)  
   
    For the three months  
    ending March 31,  
    2017     2016  
Revenues            
  Total Revenues   14,437,556     14,875,152  
             
  Cost of goods sold            
    Cost of goods sold   11,445,609     11,920,984  
             
Gross profit   2,991,947     2,954,168  
             
Operating expenses            
  General and administrative   412,945     849,279  
  Salary and employee benefits   1,945,883     2,177,590  
  Depreciation and amortization   442,400     437,172  
  Professional fees   103,277     210,893  
Total operating expenses   2,904,505     3,674,934  
             
Income (loss) from operations   87,442     (720,766 )
             
Other expenses:            
  Interest expense   355,658     747,906  
  Other expenses   6,042     250  
Total other expenses   361,700     748,156  
             
Net loss Before Income Taxes            
             
Provision for Income Taxes            
Current   56,900     -  
    56,900     -  
             
Net loss from continuing operations   (331,158 )   (1,468,922 )
             
Net loss from discontinued operations   -     (33,807 )
             
Net Loss   (331,158 )   (1,502,729 )
   
   
QUEST SOLUTION, INC.  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(UNAUDITED)  
   
    As of  
    March 31, 2017     December 31, 2016  
ASSETS                
Current assets                
  Cash   $ 277,122     $ 289,480  
  Restricted Cash     662,581       665,220  
  Accounts receivable, net     6,293,252       10,589,677  
  Inventory, net     629,165       531,593  
  Prepaid expenses     338,185       272,926  
  Other current assets     355,655       772,966  
    Total current assets     8,555,960       13,121,862  
                 
  Fixed assets, net     120,980       136,835  
  Goodwill     10,114,164       10,114,164  
  Trade name, net     2,792,231       2,936,481  
  Customer Relationships, net     6,154,477       6,435,652  
  Other assets     45,463       47,563  
Total assets   $ 27,783,275       32,792,557  
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT)                
Current liabilities                
  Accounts payable and accrued liabilities   $ 9,676,600       10,566,066  
  Accrued interest and accrued liabilities, related party     23,478       -  
  Line of credit     2,584,452       5,059,292  
  Advances, related party     100,000       100,000  
  Accrued payroll and sales tax     1,937,889       1,829,934  
  Deferred revenue, net     913,139       879,026  
  Current portion of note payable     8,151,424       9,782,925  
  Other current liabilities     242,499       227,932  
    Total current liabilities     23,629,481       28,445,175  
                 
Long term liabilities                
  Note payable, related party, net of debt discount     17,515,345       17,515,345  
  Accrued interest and accrued liabilities, related party     781,304       629,238  
  Long term portion of note payable     130,294       130,294  
  Deferred revenue, net     517,246       565,423  
  Other long term liabilities     378,778       332,270  
Total liabilities     42,952,448       47,617,745  
                 
Stockholders' deficit                
  Series A Preferred stock; $0.001 par value; 1,000,000 shares designated, 0 shares issued and outstanding as of December 31, 2016 and 2015, respectively.     -       -  
  Series B Preferred stock; $0.001 par value; 1 share designated, 0 shares and 1 share issued and outstanding as of December 31, 2016 and 2015, respectively.     -       -  
  Series C Preferred stock; $0.001 par value; 15,000,000 shares designated, 3,143,530 and 0 shares issued and outstanding as of December 31, 2016 and 2015, respectively, liquidation preference of $1 per share and a cumulative dividend of $0.06 per share     3,144       3,144  
  Common stock; $0.001 par value; 100,000,000 shares authorized; 35,095,763 and 36,871,478 shares issued and outstanding of December 31, 2016 and 2015 respectively     35,202       35,095  
  Common stock to be repurchased by the Company     (230,490 )     (230,490 )
  Additional paid-in capital     18,335,835       18,302,262  
  Accumulated deficit     (33,312,864 )     (32,935,199 )
    Total stockholders' deficit     (15,169,173 )     (14,825,188 )
Total liabilities and stockholders' deficit   $ 27,783,275       32,792,557  
   
   
QUEST SOLUTION, INC.  
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES  
(UNAUDITED)  
   
    For the three months  
    ending March 31,  
EBITDA Calculation:   2017     2016  
             
Net loss income   (331,158 )   (1,502,729 )
Net loss from discontinuing operations   -     33,807  
Income Taxes   56,900     -  
Depreciation & Amortization   442,400     437,172  
Interest Expense   355,658     747,906  
EBITDA   523,800     (283,844 )
             
Adjusted EBITDA Calculation:            
             
EBITDA   523,800     (283,844 )
             
Non Cash stock compensation   26,756     149,011  
Divestiture related costs   7,001     -  
Merger related costs   -     8,700  
One time nonrecurring costs   -     18,245  
Adjusted EBITDA   557,557     (107,888 )
             
Net Revenue   14,437,556     14,875,152  
             
Adjusted EBITDA as a % of Net Revenue   3.9 %   (0.7 %)
             

The merger related costs are fees from an independent valuation firm and legal firm which are related to the business acquisitions. The divestiture related costs are fees from a legal firm which are related to the divestiture of Quest Solution Canada Inc.

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