SOURCE: Quest Solution, Inc.

Quest Solution, Inc.

August 13, 2015 08:30 ET

Quest Solution Reports Second Quarter Results

Second Quarter Adjusted EBITDA of $1.1 Million, Cash Flow From Operations $1.6 Million, Positive as Expected and Growth Continues; Reaffirms Full-Year 2015 Revenue Guidance

HENDERSON, NV--(Marketwired - Aug 13, 2015) - Quest Solution, Inc, "The Company" (OTCQB: QUES), today announced financial results for the second quarter and six months ended June 30, 2015 and reaffirmed full-year 2015 financial guidance.

Second Quarter and Subsequent Highlights

  • Second quarter net revenues of $13.6 million, up 82.4% compared to the prior year.
  • Adjusted EBITDA of $1.1 million; positive as expected
  • Cash flow from operations of $1.6 million
  • Signed patent license agreement with NCR enabling "Smart Targeted Advertising"
  • Signed agreement with Hyperion Partners to create and launched Quest Total Solution as a Service (QTSaaS) concept
  • Expanded sales force into New York and Chicago
  • Expanded Board of Directors with the addition of W. Austin Lewis IV as an independent director

Second Quarter Comparative Select Financial Results

       
    For the Three Months Ended  
    June 30, 2015       June 30, 2014  
Revenues, net $ 13,557,615     $ 7,434,246  
Gross profit $ 3,330,810     $ 1,360,324  
  Gross profit margin   24.6 %     18.3 %
Interest expense $ (342,794 )   $ (400 )
Net income (loss) $ (285,449 )   $ (262,305 )
Earnings per share - basic $ (0.01 )   $ (0.01 )
Earnings per share - diluted $ (0.01 )   $ (0.01 )
Weighted average shares outstanding - basic   35,414,484       35,510,416  
Weighted average shares outstanding - diluted   40,219,637       35,510,416  
Net deferred revenue balance at 6/30/15 $ 804,584     $ -  
Accounts Receivable balance at 6/30/15 $ 10,109,443     $ 4,420,610  
Adjusted EBITDA $ 1,089,902     $ (253,391 )
               

"As expected, we delivered positive Adjusted EBITDA for the second quarter and continue to expect additional improvement in this metric as we progress through the second half of the year," commented Tom Miller, Quest Solution's Chief Executive Officer. "As we extract synergies from recent business combinations and continue to shift of our business model towards more contracts that bundle services with our innovative hardware and software solutions, we expect our top and bottom line to continue to grow. Partnering and teaming with leading technology companies as we have is reducing our time to market with innovative, mobile and cloud-based solutions to drive quick returns on investment for our customers and further establish our recurring revenue model. Our recent win with a leading PVC piping component manufacturer is a perfect example of how our team's ingenuity and deep understanding of this long-time customer's business is expected to lead to a larger share of their technology spend. Working with this customer puts our solution to work in one of the country's largest home supply retailers and expands our opportunities to leverage our knowledge and experience for additional growth."

"To support the increasing number of opportunities in the marketplace we further expanded geographic coverage by adding sales teams in New York and Chicago over the last six months," added Miller. "These are industry-leading technology experts with a with a proven record of success in selling solutions and building deep and wide customer relationships in our target markets We will continue to add and develop strategically placed salespeople who can sell bundled solution and service projects that help to support our near and long-term growth objectives and are expected to increase our base of recurring revenue."

Scot Ross, Quest's CFO, added, "Our solutions-based strategy is gaining momentum in the marketplace, increasing the portion of our business that represents recurring revenue. With an increased percentage of revenue under long term contracts, we are gaining greater visibility into expected future financial results and are thereby confirming our full-year 2015 revenue guidance today. As of June 30, 2015, our backlog of business to be delivered over the next 6 months stands at $ 4.6 million and the net deferred revenue balance was approximately $805,000, representing hardware and service net revenue under contract that is deferred to future periods and will be recognized when services are delivered. As a reminder, this is EBITDA for which we have received the cash and paid the expense and will recognize for accounting purposes over the life of the contracts." Ross continued, "Additionally, our cash flow from operations was approximately $1.6 million, which is attributable to the integration efforts achieved during the quarter from the sales and operations team performance.

Second Quarter Financial Results

Revenue

Revenues for the three month period ended June 30, 2015 increased 82% to $13.6 million compared to $7.4 million for the three months ended June 30, 2014. This increase was due primarily to the acquisition of BCS in November 2014 and additional Quest organic sales activity sold in the second quarter of 2015. Second quarter net revenues of $13.6 million represented an increase of 27% over first quarter ending March 31, 2015.

Gross Margin

For the second quarter of 2015, gross profit margin was 24.6% of total revenues compared to 18.3% in the second quarter of 2014. The gross margin improvement was due primarily to the additional revenue generated from the BCS acquisition and the operational efficiencies achieved from the continued integration efforts of the combined companies.

Net Income (Loss)

Net GAAP accounting loss for the three month period ended June 30, 2015 was $285,449 compared to a net loss of $262,305 for the three months ended June 30, 2014.

Adjusted EBITDA

The company's operating expenses during both quarters ended June 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 Earnings Before Interest, Taxes and Depreciation and Amortization ("Adjusted EBITDA") for the quarter ended June 30, 2015 was approximately $1.09 million compared to negative Adjusted EBITDA of $253,000 for the quarter ended June 30, 2014. Please refer to the financial tables included below for a reconciliation of GAAP to non-GAAP financial results.

Year-to-Date Financial Results

Revenue

Net Revenues for the six month period ended June 30, 2015 increased 42% to $24.2 million compared to $17.1 million for the six months ended June 30, 2014. This increase was due primarily to the acquisition of BCS in November 2014. The unaudited pro-forma revenue of Quest and BCS for 2014 would have been $19.7 million, so in comparing the two companies year over year, there was an approximate 23% increase (or $4.8 million) due to organic growth of both companies.

Gross Margin

For the first six months of 2015, gross profit margin was 23.6% of total revenues compared to 19.6% in the first six months of 2014. The gross margin improvement was due primarily to increased sales from the BCS acquisition in November 2014, continued integration efforts and operational efficiencies achieved during the quarter and year to date.

Net Income (Loss)

Net accounting loss for the six month period ended June 30, 2015 was $708,000 compared to a net loss of $16,000 for the six months ended June 30, 2014. The decrease in net income is attributable to the increase in interest expense of $737,000, of which $400,000 is non-cash original issue discount classified as interest expense in accordance with GAAP. 

Adjusted EBITDA

The company's operating expenses during both six month periods ended June 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 Earnings Before Interest, Taxes and Depreciation and Amortization ("Adjusted EBITDA") for the six months ended June 30, 2015 was approximately $1.1 million compared to Adjusted EBITDA of $26,000 for the six months ended June 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 $7.3 million and deferred costs of $6.5 million. This net deferred revenue of $805,000 at June 30, 2015 will be recognized in income over the term of the contracts, normally 1 - 5 years, with 3 years being the average term.

Backlog

The Company's backlog of signed, contracted orders at June 30, 2015 was approximately $4.6 million. The backlog reflects orders expected to be delivered during 3rd and 4th quarters of 2015..

2015 Outlook

The company reiterated full-year 2015 financial guidance.

  • Revenue of $62-$68 million, representing top-line growth between 5-15%
  • 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
  • The above excludes impact from Viascan acquisition which is expected to close in the third quarter of 2015. Viascan is expected to contribute incremental revenue of $22 - $25 million and be accretive to Adjusted EBITDA.

About Quest Solution, Inc

Quest Solution, Inc. is a leading provider in the technology, software, and mobile data collection systems business. In November 2014, the Company announced that Bar Code Specialties, Inc. (BCS) joined with Quest Solution, Inc. The Company intends on continuing to acquire existing companies with revenues and positive cash flow.

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.

The BCS acquisition and letter of intent with ViascanQData is in addition to the recently announced creation of a wholly-owned division focused on commercializing Intellectual Property, Patents and Distribution of industry-specific technologies in an array of new verticals. The new division will focus on the acquisition of existing intangibles, which we anticipate will provide immediate value to the company.

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, 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 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 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.

Financial Tables Follow

 
Quest Solution, Inc.
Consolidated Statements of Earnings
 
  For the three months   For the six months
  ending June 30,   ending June 30,
  2015   2014   2015   2014
Revenues                              
  Gross Sales $ 13,731,186     $ 7,516,700     $ 24,443,202     $ 17,166,965  
  Less sales returns, discounts & allowances   (173,571 )     (82,454 )     (209,617 )     (110,559 )
Total Revenues   13,557,615       7,434,246       24,233,585       17,056,406  
                               
Cost of goods sold                              
  Cost of goods sold   10,226,805       5,726,660       18,508,170       13,013,983  
  Cost of goods sold, related party   -       347,262       -       694,523  
Total costs of goods sold   10,226,805       6,073,922       18,508,170       13,708,506  
                               
Gross profit   3,330,810       1,360,324       5,725,415       3,347,900  
                               
Operating expenses                              
  General and administrative   795,076       255,538       1,807,520       500,693  
  Salary and employee benefits   1,854,620       1,261,297       3,179,052       2,643,013  
  Depreciation and amortization   20,368       2,928       45,864       10,822  
  Stock compensation   420,253       5,586       458,877       30,085  
  Professional fees   108,083       137,989       196,563       267,764  
Total operating expenses   3,198,400       1,663,338       5,687,876       3,452,377  
                               
Income (loss) from operations   132,410       (303,014 )     37,539       (104,477 )
                               
Other income (expenses):                              
  Gain on debt settlement   -       -       -       151,949  
  Loss on license settlement   -       -       -       (93,578 )
  Loss on note receivable settlement   -       -       -       (18,995 )
  Taxes   (64,322 )     -       (64,209 )     -  
  Interest expense   (342,794 )     (400 )     (738,066 )     (1,000 )
  Other expenses   (38,093 )     -       (38,485 )     -  
  Other income   27,350       41,109       95,690       50,215  
Total other income (expenses)   (417,859 )     40,709       (745,070 )     88,591  
                               
Net Income Before Income Taxes   (285,449 )     (262,305 )     (707,531 )     (15,886 )
                               
(Provision) Benefit for Income Taxes                              
  Deferred   -       -       -       -  
  Current   -       -       -       -  
                               
Net income (loss) $ (285,449 )   $ (262,305 )   $ (707,531 )   $ (15,886 )
                               
Net income (loss) per share - basic $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.00 )
Net income (loss) per share - diluted $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.00 )
                               
Weighted average number of common shares outstanding - basic   35,414,484       35,510,416       35,224,128       33,385,416  
Weighted average number of common shares outstanding - diluted   40,219,637       35,510,416       40,219,637       33,385,416  
                               
                               
                               
Quest Solution, Inc.
Consolidated Balance Sheets
 
  As of
  June 30,   December 31,
  2015   2014
ASSETS              
Current assets              
  Cash $ 322,317     $ 233,741  
  Accounts receivable, net of allowances of $52,924 and $62,800, respectively   10,109,443       9,099,229  
  Inventory   383,350       606,231  
  Prepaids   669,887       191,498  
  Other current assets   1,450       377,060  
    Total current assets   11,486,447       10,507,759  
               
  Fixed assets, net of accumulated depreciation of $3,062,903 and $1,781,086, respectively   181,587       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   568,067       466,870  
  Customer Relationships   4,390,000       4,390,000  
  Other assets   641,749       317,304  
Total assets $ 35,368,573     $ 33,989,318  
               
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
Current liabilities              
  Accounts payable and accrued liabilities $ 8,564,562     $ 7,406,146  
  Accrued interest and liabilities, related party   278,770       51,806  
  Line of credit   1,718,128       1,819,345  
  Advances, related party   400,000       50,000  
  Accrued payroll and sales tax   1,661,789       917,079  
  Deferred revenue, net   804,584       297,277  
  Current portion of note payable   150,000       310,000  
  Notes payable, related parties, current portion   2,805,857       4,201,650  
  Other current liabilities   403,608       548,425  
    Total current liabilities   16,780,667       15,601,353  
               
Long term liabilities              
  Note payable, related party, net of debt discount   17,076,599       17,007,175  
  Deferred tax liability   -       29,783  
  Other long term liabilities   307,822       157,495  
Total liabilities   34,171,720       32,795,806  
               
Stockholders' equity (deficit)              
  Preferred stock; $0.001 par value; 25,000,000 shares authorized 500,000 and 500,000 shares outstanding as of June 30, 2015 and December 31, 2014, respectively.   500       500  
  Common stock; $0.001 par value; 100,000,000 shares authorized; 36,616,495 and 35,029,495 shares outstanding of June 30, 2015 and December 31, 2014, respectively.   36,616       35,029  
  Additional paid-in capital   18,609,425       17,900,139  
  Accumulated (deficit)   (17,449,688 )     (16,742,156 )
    Total stockholders' equity (deficit)   1,196,853       1,193,512  
Total liabilities and stockholders' equity $ 35,368,573     $ 33,989,318  
               
               
               
Quest Solution, Inc.
Unaudited
Reconciliation of GAAP Measures to Non-GAAP Measures
 
  3 months ended
June 30, 2015
   
Net income (loss) $  (285,449)
   
Stock based compensation and options 440,560
Deferred revenue net 507,307
Interest expenses 342,794
Tax 64,322
Depreciation 20,368
Adjusted EBITDA $  1,089,902
   
   
   
  6 months ended
June 30, 2015
   
Net income (loss) $  (707,531)
   
Stock based compensation and options 458,877
Deferred revenue net 507,307
Interest expenses 738,066
Tax 64,209
Depreciation 45,864
Adjusted EBITDA $  1,106,792
   

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