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 Three Months
Ended Ended
3/31/2017 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."
(1)All 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, December 31,
2017 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.
Investor Contact: Joey Trombino CFO (714) 899-4800
jtrombino@questsolution.com