SOURCE: Quest Solution, Inc.

November 17, 2017 20:02 ET

Quest Solution Reports Third Quarter 2017 Results

EUGENE, OR--(Marketwired - November 17, 2017) - Quest Solution, Inc. (OTCQB: QUES), a specialty systems integrator focused on field and supply chain mobility announced its financial results for the three and nine-month periods ended September 30, 2017.

Highlights

  • Revenues for Q3 2017 of $12.96 million declined slightly from $13.56 for Q3 2016
  • Improved gross margin of 21.8% for the quarter ended September 30, 2017, compared to 19.6% in Q3-2016
  • Salary and employee benefits Operating expenses includes $416,548 of non-cash stock based compensation
  • Total operating expenses decreased 8.6% to $9.1 million for the first nine months ended September 30, 2017 compared to $10 million in the prior year period
  • Substantial reduction of net loss from continuing operations to $0.9 million for the three months ended, an improvement of $1.6 million compared to the prior year period
  • $4.6 million reduction in current portion of notes payable
  • Management focuses on turnaround plan aiming to strengthen the financial structure and turn to profitability

Quest reported revenues of $12.96 million for the third quarter ended September 30, 2017 compared to $13.56 million in the comparable 2016 period. The slight decrease was mainly attributable to unavailability of inventory at the manufacturer which delayed shipments into Q4-2017. Gross margin improved to 21.8% in the third quarter of 2017 compared to 19.6% in the prior year period, primarily due to a 7.1% decrease in the cost of goods sold. During the quarter the Company expensed $416,548 in non-cash stock based compensation. The Company reported improved net loss from continuing operations of $902,882, or a net loss from continuing operations of $0.03 per share, as compared to net loss from continuing operations of $2,467,290, or a net loss from continuing operations of $0.07 per share in the same quarter last year. Adjusted EBITDA (Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization) improved to $309,812, or 2.4% of sales, compared to $190,437 or 1.4% of sales in Q3-2016.

Shai Lustgarten, CEO, commented, "One of our primary goals entering the third quarter was to improve operational efficiency, and our results reflect just that. Not only did gross profit increase as a percentage of sales, we significantly reduced net loss from continuing operations. Moreover, while total operating expenses rose slightly during the quarter, this increase was largely related to $416,548 in non-cash, stock based compensation."

For the nine months ended September 30, 2017, Quest reported revenues of $40.9 million, compared to $43.4 million in the comparable 2016 period. The decrease was primarily related to a temporary unavailability of inventory at the manufacturer, as described above. Gross margin improved to 21.1% in the first nine months of 2017 compared to 20.2% in the same period in 2016, primarily related to a 6.9% decrease in the cost of goods sold. During the period the Company expensed $565,593 in non-cash stock based compensation. Net loss from continuing operations improved significantly on a nine-month basis to $1.7 million, or a loss of $0.05 per share, compared to a net loss from continuing operations of $5.4 million, or a loss from continuing operations of $0.15 per share in the prior year period. Adjusted EBITDA for the nine month period improved to $1,405,202, or 3.4% of sales, compared to $503,338, or 1.16% of sales for the comparable period.

Mr. Lustgarten continued, "We are pleased with the initial progress we have made in several areas of our turnaround strategy. An initial priority has been to reduce costs in the business, and we have realized significant efficiencies thus far which should translate into over $1 million in savings in 2018. Second, the balance sheet saw marked improvement, with a $4.6 reduction in the current portion of our notes payable."

Mr. Lustgarten concluded, "Quest has built a world class customer base of Fortune 100 companies who look to us to help solve their supply chain needs. This market is evolving quickly and Quest sits in a unique position to drive more profitable growth. To that end, a key focus of the new management team is to offer new and enhanced solutions, with a particular focus on software and services. This year Quest launched the Route Edge software product which has been well received. We saw an increase in our more profitable software and services sales during the quarter and our goal is to continue to grow this portion of our sales mix and better leverage our valuable sales channel."

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.

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   For the nine months  
   ending September 30,   ending September 30,  
   2017   2016   2017   2016  
Revenues                     
 Gross Sales  $13,311,109   $13,841,279   $41,594,938   $44,288,975  
 Less sales returns, discounts, & allowances   (347,055 )  (277,128 )  (708,184 )  (849,256 )
Total Revenues   12,964,054    13,564,151    40,886,754    43,439,719  
                      
Cost of goods sold                     
 Cost of goods sold   10,132,067    10,910,089    32,263,124    34,648,909  
Total costs of goods sold   10,132,067    10,910,089    32,263,124    34,648,909  
                      
Gross profit   2,831,987    2,654,062    8,623,630    8,790,810  
                      
Operating expenses                     
 General and administrative   481,287    505,903    1,308,395    1,571,102  
 Salary and employee benefits   2,258,873    1,871,610    6,045,564    6,471,563  
 Depreciation and amortization   440,433    442,428    1,324,345    1,347,077  
 Professional fees   209,086    192,814    450,509    603,190  
Total operating expenses   3,389,679    3,012,755    9,128,813    9,992,932  
                      
Income (loss) from operations   (557,692 )  (358,693 )  (505,183 )  (1,202,122 )
                      
Other income (expenses):                     
 Restructuring expenses   -    (84,317 )  (26,880 )  (544,941 )
 Gain on foreign currency   -    (90,215 )  -    129,589  
 Write-off of other assets        (450,000 )       (450,000 )
 Interest expense   (343,092 )  (1,110,804 )  (1,075,147 )  (2,802,980 )
 Other (expenses) income   13,202    3,065    16,122    6,871  
Total other expenses   (329,890 )  (1,732,271 )  (1,085,905 )  (3,661,461 )
                      
Net Loss Before Income Taxes   (887,582 )  (2,090,964 )  (1,591,088 )  (4,863,583 )
                      
Provision for Income Taxes                     
 Deferred   -    -    -    -  
 Current   (15,300 )  (376,326 )  (91,409 )  (491,254 )
Total Provision for Income Taxes   (15,300 )  (376,326 )  (91,409 )  (491,254 )
                      
Net loss from continuing operations  $(902,882 ) $(2,467,290 ) $(1,682,497 ) $(5,354,837 )
                      
Net loss from discontinued operations   -    (3,919,175 )  -    (6,851,875 )
                      
Net Loss attributable to Quest Solution Inc.  $(902,882 ) $(6,386,465 ) $(1,682,497 ) $(12,206,712  
                      
Other Comprehensive Loss                     
Foreign Currency Adjustments        120,333         (361,744 )
                      
Net Loss attributable to Quest Solution Inc.  $(902,882 ) $(6,266,132 ) $(1,682,497 ) $(12,568,456 )
Less: Preferred stock - Series C dividend   (47,540 )  (43,968 )  (141,071 )  (62,707 )
                      
Net loss attributable to the common stockholders  $(950,422 ) $(6,310,100 ) $(1,823,568 ) $(12,631,163 )
                      
Net income (loss) per share - basic  $(0.03 ) $(0.18 ) $(0.05 ) $(0.34 )
Net income (loss) per share - diluted  $(0.03 ) $(0.18 ) $(0.05 ) $(0.34 )
                      
Net loss per share from continuing operations - basic  $(0.03 ) $(0.07 ) $(0.05 ) $(0.15 )
Net loss per share from continuing operations - diluted  $(0.03 ) $(0.07 ) $(0.05 ) $(0.15 )
                      
Net loss per share from discontinued operations - basic  $-   $(0.11 ) $-   $(0.19 )
Net loss per share from discontinued operations - diluted  $-   $(0.11 ) $-   $(0.19 )
                      
Weighted average number of common shares outstanding - basic   35,812,210    35,762,326    35,587,238    36,506,733  
Weighted average number of common shares outstanding - diluted   35,812,210    35,762,326    35,587,238    36,506,733  
                 
  
QUEST SOLUTION, INC. 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(UNAUDITED) 
  
   As of  
   September 30, 2017   December 31, 2016  
ASSETS           
Current assets           
 Cash  $260,642   $289,480  
 Restricted Cash   684,610    665,220  
 Accounts receivable, net (Note 5)   8,271,965    10,589,677  
 Inventory, net (Note 6)   746,894    531,593  
 Prepaid expenses   281,215    272,926  
 Other current assets   183,347    772,966  
  Total current assets   10,428,673    13,121,862  
             
 Fixed assets, net (Note 7)   98,918    136,835  
 Goodwill   10,114,164    10,114,164  
 Trade name, net   2,503,731    2,936,481  
 Customer Relationships, net   5,592,116    6,435,652  
 Other assets   41,613    47,563  
            
Total assets  $28,779,215   $32,792,557  
            
LIABILITIES AND STOCKHOLDERS' (DEFICIT)           
Current liabilities           
 Accounts payable and accrued liabilities  $13,558,337   $10,566,066  
 Accrued interest on note payable   33,428    -  
 Line of credit (Note 10)   3,677,661    5,059,292  
 Advances, related party   100,000    100,000  
 Accrued payroll and sales tax   1,571,821    1,829,934  
 Deferred revenue, net (Note 9)   830,903    879,026  
 Current portion of note payable (Note 11)   5,229,496    9,782,925  
 Other current liabilities (Note 8)   238,700    227,932  
  Total current liabilities   25,240,346    28,445,175  
            
Long term liabilities           
 Note payable, related party (Note 12)   17,515,345    17,515,345  
 Accrued interest, related party   1,121,818    629,238  
 Long term portion of note payable (Note 11)   130,294    130,294  
 Deferred revenue, net (Note 9)   418,128    565,423  
 Other long term liabilities (Note 8)   415,397    332,270  
Total liabilities   44,841,328    47,617,745  
            
Stockholders' (deficit)           
 Series A Preferred stock; $0.001 par value; 1,000,000 shares designated and 0 shares outstanding as of September 30, 2017 and December 31, 2016, respectively.   -    -  
 Series B Preferred stock; $0.001 par value; 1 share designated and 0 shares outstanding as of September 30, 2017 and December 31, 2016, respectively.   -    -  
 Series C Preferred stock; $0.001 par value; 15,000,000 shares designated, 3,143,530 shares outstanding as of September 30, 2017 and December 31, 2016, respectively, liquidation preference of $1.00 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 designated, 36,157,422 and 35,095,763 shares outstanding of September 30, 2017 and December 31, 2016, respectively.   36,157    35,095  
 Common stock to be repurchased by the Company   (230,490 )  (230,490 )
 Additional paid-in capital   18,887,852    18,302,262  
 Accumulated (deficit)   (34,758,776 )  (32,935,199 )
  Total stockholders' (deficit)   (16,062,113 )  (14,825,188 )
Total liabilities and stockholders' (deficit)  $28,779,215   $32,792,557  
         
  
QUEST SOLUTION, INC. 
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES 
(UNAUDITED) 
  
   For the three months   For the nine months  
   ending September 30,   Ending September 30,  
EBITDA Calculation:  2017   2016   2017   2016  
                  
Net loss  (902,882 ) (6,386,465 ) (1,682,496 ) (12,206,712 )
Net loss from discontinuing operations  -   3,919,175   -   6,851,875  
Income Taxes  15,300   376,326   91,410   491,254  
Foreign exchange gain  -   90,215   -   (129,589 )
Depreciation & Amortization  440,433   442,428   1,324,345   1,347,077  
Interest Expense  340,413   1,110,804   1,072,469   2,802,980  
EBITDA  (106,736 ) (447,517 ) 805,728   (843,115 )
                  
Adjusted EBITDA Calculation:                 
                  
EBITDA  (106,736 ) (447,517 ) 805,728   (843,115 )
                  
Non Cash stock compensation  416,548   103,637   565,593   308,079  
Restructuring expenses  -   84,317   26,880   544,941  
Merger related costs *  -   -   7,001   25,188  
One time nonrecurring costs  -   450,000   -   468,245  
Adjusted EBITDA  309,812   190,437   1,405,202   503,338  
                  
Net Revenue  12,964,054   13,564,151   40,886,755   43,439,719  
                  
Adjusted EBITDA as a % of Net Revenue  2.39 % 1.40 % 3.44 % 1.16 %
* The merger related costs are fees from an independent valuation firm and legal firm which were related to the business acquisitions.

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