Zedcor Inc. ($ZDC)

Thank you for standing by. My name is Joe Diaz, and I'll be the conference call operator. Welcome to the Zedcor Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions]. I would now like to turn the conference over to Amin Ladha, Chief Financial Officer. Please go ahead.

Thank you, Joe. Good morning, everyone. Thank you for joining us today. Joining me on the call is our President and CEO, Todd Ziniuk. Last night, after markets closed, Zedcor issued a news release announcing our financial results for the 3 and 12 months ended December 2025. This news release will be available on our website under the Investor Relations tab and is filed on our SEDAR profile. Please note that portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Forward-looking statements are based on management's current views and assumptions. This discussion is qualified in its entirety by the cautionary note regarding forward-looking statements that is appended to our news release. Please review our press release and our reports filed on SEDAR+ for various factors that could cause actual results to differ materially from those projections. We use terms such as gross profit, gross margin and adjusted EBITDA on this conference call, which are non-IFRS and non-GAAP measures. For more information on how we define these terms, please refer to the definitions set out in our MD&A. In addition, reconciliations between any adjusted EBITDA and net income is included in the MD&A as well. One important non-GAAP measure we use is adjusted EBITDA. The company believes that adjusted EBITDA is a meaningful financial metric as it measures cash generated from operations, which the company can use to fund working capital requirements, fund future growth initiatives and service future interest and principal debt repayments. Adjusted EBITDA should not be construed as an alternative to net income determined in accordance with IFRS. Please note that all financial information is provided in Canadian dollars otherwise noted. Following the prepared remarks by Todd and myself, we will conduct a Q&A session, during which questions will be taken from our analysts. Moving on to a review of our financial statements for the quarter. Some highlights for the fourth quarter include record revenues of $17.9 million. This exceeded our previous high set last quarter by $1.9 million and is an increase of 73% year-over-year. Our recurring revenue for Q4 2025 remains steady. We also had record adjusted EBITDA of $7.1 million for Q4. This was an increase of 78% year-over-year, and EBITDA margin remained strong at approximately 40% for the quarter. Our tower count and customer base continue to grow. More importantly, our weekly tower production, which is a key metric for us continues to increase. During Q4, we deployed 435 towers which was slightly impacted by the holidays in Q4 in the U.S. Thanksgiving and Christmas and our move to our new facility. However, production in our Houston, Texas facility is back up to that 40 to 50 towers per week which is what we had previously disclosed as our goal. Moving on to the year-to-date highlights. Revenue for the 12-month period ended December 31 was $58.9 million, this compares to $33 million for the 12 months ended December 31, 2024. This was an increase of 79%. Adjusted EBITDA increased to $21.8 million or 37% of revenues compared to $12 million and 36% of revenues for the fiscal year ended December 2024. The revenues and EBITDA have increased, but we have also had other major accomplishments, including significant U.S. expansion within Texas as well as other major U.S. cities, including Denver, Phoenix, Las Vegas, Sacramento, Jacksonville and Tampa. A number of these were expanded to in Q4 of 2025. The tower fleet was just over -- just under 2,800 towers at quarter end, it's an increase of 1,451 units or 109% year-over-year. Diving into the income statement a bit more for the 3 and 12 months ended December 31, Q4 2025 revenues increased 73% and 12% quarter-over-quarter. For the full year ended December 2025, revenues increased 79% and U.S. revenues continues to grow, standing at 43% of revenues in Q4 and 36% of revenues for the fiscal year. We're also seeing a growth in Canada as well, and Canadian revenues grew 32% in 2025. On a daily run rate basis, U.S. revenues have now exceeded Canadian revenues as we previously projected. Gross margin increased to $11.1 million or 62% of revenues in Q4. This continues to be steady, but we may see some modest reductions in upcoming quarters as we wrap up hiring and training for expanding U.S. monitoring center in order to maintain service levels and make investments for 2026 growth. Adjusted EBITDA increased to $7.1 million, which is approximately 40% of revenues. This compares to $4 million or 39% of revenues in Q4 2024, and it reflects our operational efficiencies despite adding salespeople and locations in key regions in both Canada and the U.S. We have nearly doubled the size of our U.S. sales team and we'll continue to invest in expansion at the local level and expand our geographical footprint. Adjusted EBITDA per share increased to $0.07, driven by higher sales and effective cost controls and offset by a higher share count year-over-year. The improvement in our operating results is mainly driven by increasing fleet of security towers, which grew nearly 110% and nearly 20% in Q4 alone, supported by strong customer demand and customer -- and while utilization dropped slightly in Q4 as a result of manufacturing more towers in order to build inventory, this was planned from the previous utilization rates above 95% were inefficient for the operations. Moving on to a discussion of the balance sheet. We exited Q4 with a cash balance of $2.7 million. Also in Q4, we expanded our current banking facility to a $50 million revolver and a $25 million accordion. Approximately $40 million of that was drawn at the end of fiscal 2025. And subsequent to the quarter, we increased that facility in February 2026 to $75 million with a $25 million accordion. This provides additional liquidity for continued growth and reduced interest rates. Due to the new refinancing, our new facility does not have principal debt repayments. We have interest-only payments. This frees up about $1 million quarterly and $4 million annually in free cash to invest back into the business. We had net debt of just under $38.4 million. Our net debt LTM EBITDA is 1.76x. This has increased over time as we deploy capital, but it's been offset by growing LTM EBITDA as we saw this quarter. Net PP&E increased to $96.5 million due to continued investments in growing the company's fleet of security towers A portion of that increase is sitting in assets under construction as we purchased a number of longer lead components in order to ramp up growth and meet our production targets. We try to keep that around 6 to 8 weeks production and we are actively managing AUC so that unnecessary capital isn't tied up. Subsequent to the quarter, we also completed a $30.5 million upsized bought deal public offering at $6 per share and no warrants were included in that. Together with the expanded and extended banking facility, the strong demand for our equity empowers us to appropriately fund our growth, using debt and equity to minimize dilution for our shareholders. A review of our cash flow statement for Q4. Adjusted operating cash flow before working capital increased to $5.9 million, demonstrating the growing cash flow generation capacity of the business. Capital expenditures in Q4 increased quarter-over-quarter as our manufacturing capabilities are streamlined. We staffed up our team and established our processes. An important thing we'd like to point out here is that maintenance CapEx continues to represent a small portion of the total and the bulk of the amount being spent on capital expenditures is for growing our tower fleet and expanding our geographical footprint. I'll now hand over the call to Todd, who will provide you with an operations update and some insights into our go-forward strategy.

Thank you, Amin. As you saw from the numbers, we had a strong quarter with strong margins, and we're excited about where the business is headed, opportunities we are seeing both in Canada and the U.S. To touch on the manufacturing side, in Q4, we averaged 40 towers per week, and we are averaging about 35 towers being deployed. The biggest goal I had from the beginning when we got down there was to get the manufacturing set up to where we have the ability to obviously build towers quicker if we need to. We've moved into a new facility. We're seeing big efficiencies there with the larger shop floor space and just everybody being housed under one roof, we're finding strong efficiencies there. We have the ability, obviously, to build a lot more towers than that moving forward per week. We're seeing a lot of -- we're experiencing quite a bit of interest from the enterprise customers. As we've said before, it's a long runway. We've got some that we're growing out. They're moving slowly, but we're deploying towers with them. Something that excites me quite a bit about that. It's been roughly about 2 years from this month where we actually deployed our first towers in the United States of the new style tower prototype. And I think we're getting strong interest for only being there for 2 years. And we're continuing to build out our platform, which has been the plan all along. We get the platform built out. What I mean by that is all of our branches set up across the U.S. We're on target to do 6 to 8 minimum this year. It's exciting. We're getting into different regions. We're moving into different regions on the fact that we know the works there and also customers are taking us into the different regions as well. As far as the manufacturing also goes, we've done a great job. The team in Houston has done an excellent job, and we have no bottlenecks. We've done a great job working with our steel providers. They're ahead on packages as well so that if we have to step on it harder, we can. We also, at all times at the facility have about 100 to 150 on built towers. So if you need to step on, it gives everybody else a little bit of a chance to catch up and the ability to build towers quicker. So we've always wanted to get the business at 85% utilization run it there. Obviously, if you can be higher, that's great. But for us, we see the efficiency at 85%. What I mean by that is we fill all of our platforms, all of our branches with adequate tower levels now where before we used to -- when you're first getting into this, you're setting loads of 2 to 3 to 4 towers, if required per city. Now we have the ability -- the way we've designed our tower, we can haul 20 per load and it's way more efficient. The guys at all the platforms have inventory now. So if we do keep growing with some of these enterprise customers, with the platform, we can deploy our towers quite quickly. And I think that's something that gives us a bit of a competitive edge on being able to do that, move quickly and keep supplying our clients with the white glove service. We exited 2025. Our goal was to build 1,200 to 1,500 towers. We built 1,451. The goal for 2026 is a minimum of 1,800 and up closer to the 2,000. I'd like to see us get really close to exit the year, total fleet of about 5,000. We're seeing growth as well in the ZBox and just so everybody understands what that is, it's a box. I think most of the people on the call have been explained to what that is. But if they go where towers can't be utilized, it could be due to space wall-mounted units. So we're happy to see the growth there as well. It's just another service line that we give our clients. The biggest thing right now is to building out our sales team. We continue to do that as we build out the platform. We hire managers in the area, field salespeople that are out hitting job sites. We continue to build out our national sales team. We're actually now just making a move to get some inside sales as well. People line up meetings. We're quite excited about that. And we're starting to see in a lot of different regions we're in incoming calls. Obviously, when these towers get out in the field, they become a bit of a billboard themselves, and we see it in different regions that it's helped the growth. And once you get somewhat established there, you start to see the incoming calls to the branch managers in that region. That's pretty much high level for the operations. I think, Amin, I can pass it back over to you, and we'll open it up for questions from the analysts.

For sure. Let's start it, Joe.

Thank you, Todd. We will now take questions from analysts only. And the first question comes from Richard Tse at National Bank.

Congrats on the great results here. With respect to your targets for 2026, what do you think sort of the biggest constraint to kind of hitting those numbers? I think you talked, Todd, about the sales. Is that sort of the key thing that we should sort of focus on in terms of helping meet those targets?

Yes. I think, honestly, Richard, it's not a matter of the works there. It's about getting set up in the different regions, building out the client base. We have a strong client base. I think there's a lot of internal growth just with those clients as well. And it is about the sales, getting a strong sales team. I think as a company, we've got a lot better. I mean, I think you'd agree with the training that we do now, different things we have in place to make sure that these people fit in with the organization and it's a lot of B2B sales. And that's an important part of this business and being able to get out there. And it's also educating the client on our Pacific product Hardware is one thing, but it's what we do under our whole umbrella that makes Zedcor who we are. And I think, Amin, I don't know if you'd like to add to that.

Yes. I'll just quickly add, I think we learned -- getting in front of the customer and really expanding on how we're different than the competitors in the market, how we bundle the sales and the service with the monitoring, how we can truly prevent the crime, that's key for landing the work and making it sticky. Like we found that once we get the work most people don't leave, and they'll add to that tower. We have a number of kind of growing medium-sized enterprise customers or even large-sized enterprise customers that have grown from 2 towers on a proof-of-concept or a trial to 4 to 8 and close to 50 so far. That's both in the homebuilding space and in the logistics space. So getting in front of these customers, having the right salespeople, the relationships, really being able to extrapolate and kind of explain the differences, that's key for us.

Okay. Just on the sales side, I think last year, you kind of really started the ramp, particularly on the U.S. sales side. Maybe you can kind of give us a sense of how those hires have kind of come to like sort of full capacity? Are they kind of like where they need to be or they've got a little bit more to go to sort of be fully productive?

So we started -- the salespeople, we added a bunch in kind of late October, early November. Obviously, that's not the best time in the U.S. to be adding people at Thanksgiving and Christmas coming up. So we're going to keep adding to people. I think that's one thing we learned is don't let our foot off the gas on hiring the salespeople. That kind of big batch of people we hired in Q4 last year, they're getting up to speed. And like Todd said, we've added and expanded our training and our monitoring and kind of our accountability and improved that as well. So being on top of them is key I don't necessarily have like a percentage of success, but it's getting better. We've had a few people start and they start -- like the goal is 2 towers per week minimum. And I think that's a pretty achievable goal for most people. Our best salespeople do a lot more than that. And our goal is to get everybody to that level.

Okay. I'll just add to that, Richard, I think there's a lot of learnings we've taken as you grow into different regions and even the 2 different countries. I think we've done a great job of paying attention to what the KPIs need to be. It's a bit of a newer industry, it hasn't -- especially the monitoring portion added on to the towers. And it takes quite a bit to get through exactly what it means and educational stuff for the clients and the proper way to message that to the clients. And I think we've come up with a pretty good strategy with that, and we see it working out. And like you said, I mean, some of our salespeople that come on, it's unbelievable, the job, the team is doing and how quick they are getting it out. Unfortunately, some people don't make it, right? And that's where I think we've got a lot better with our accountability with our people. And I've made that a strong word moving into '26, accountability and holding people accountable from branch manager levels right down to the salespeople and everybody in our manufacturing facility. So I think it's key to how we run our business.

Okay. Great. I just have one other one, and I'll hand the line over after that is if you sort of look at the progression of wins, obviously, you had some really great growth recently. What's the mix of wins between kind of, let's say, greenfield versus competitive displacements? How is that compared to the past? And what do you think it will look like here going forward here over the next year?

To be totally honest, we don't really track that. We'll take the work anyway we can get it. I want to say a lot of it is especially the U.S. kind of -- it's a mix of offsetting or especially in the larger customers. It's offsetting security guards or it's offsetting a competitor. Like some of the logistics wins we've had those kids have gone into like they ramped up pretty quick. They're up to close to 100 units. And that's ones where we've offset people -- or offset competitors, sorry. And then in the homebuilding space, we're usually offsetting security guards in the construction space.

The second question comes from Gary Ho from Desjardins.

I think you're muted.

Yes, I'm here. Can you guys hear me okay?

Yes, we can hear you now.

Sorry about that. And maybe just to start off, I think in the U.S., you mentioned utilization was above 83%. I think on the last call, I mentioned, like targeting that 85% to 90%. So you can move quicker and build inventory in anticipation of kind of mid-enterprise clients. So are you at a comfortable utilization rate right now? Is that how we should think about that at least for the balance of 2026? And maybe just housekeeping, what were utilizations for Canada and overall on a consolidated level?

I think overall, we're pretty happy with the utilization levels even going into Q1 2026. We ramped up the utilization back to where it should be. So overall, I think we're pretty happy. Obviously, the fleet is grown as well. And yes, like it was minor difference in the utilization as a whole, but the U.S. is back on track. And as I mentioned, the utilization in the -- sorry, the run rate revenue in the U.S. is better than Canada, which happened in a pretty short period of time.

[indiscernible] percentage-wise.

I don't know if we want to disclose the overall percentage just for competitive reasons right now.

And then just on the enterprise account side, maybe just give us an update there. How are discussions going with larger enterprise accounts from our last call and any new ones of note in the past few months? And as you intensify your efforts in the enterprise channel, do you feel you need extra sales expertise to tap that channel, different skill set or relationship? Or can you just do that with your existing sales team?

I think, Gary, obviously, it helps. We're always looking for enterprise salespeople. We're actually interviewing one right now. But it's in that industry, it's a lot of relationships, and it's a lot of trust. For example, I think that whole retail space, if you're talking just retail as an enterprise client, which there's a lot of other different enterprise clients. It comes off trust that why are you using these guys well, they're doing a great job. And we're getting very close. I can't say, obviously, but we've got towers deployed with some very big machines that I think over time are going to keep growing in the retail space. I think it's a matter of proving ourselves what we're doing different. And I think the biggest thing that everybody probably needs to understand is the retail space is not used to having monitoring. The towers they've had did not come with that. So there again, you've got to educate these clients, give them the opportunity to see the advantages when your store is closed, we can do this. We can watch doors, we can do a variety of different things. And it takes a bit -- I think even when we first got into Texas, Gary, it was pretty saturated like with some mom-and-pops, not heavily saturated. But the attitude when we first got out there, even in the homebuilding construction or you're just another tower company. But once they get educated on the fact that no, we're not just another tower company, a couple of things that make us different. We build our own towers, we monitor them. And once they see that, it speaks volume. Speak enterprise, we've got another homebuilder that's a large homebuilder come on board. They're growing very quickly with us. It's probably going to lead us into another national account. It's great. They love it. They've moved into one area with them, Gary, and literally took their theft from through the roof to pretty much nil at 0. And they see why it's worth paying, obviously, the rate we charge because it's effective and that's the biggest thing that we really explain to the clients is maybe our rates are a little bit higher or pretty much competitive. But what we're doing is you're saving money. You got to look at the big picture. It's not just your monthly price on this tower is what are we actually saving you in the long run on a project. If your shrinkage can go from X down to saving them hundreds of thousands of dollars over a year, you get the right guys that do the math that way. And we've actually have some of our bigger enterprise clients that have taken the upper management above them and said, look, these guys have taken us from where we are with this to literally no theft. And that's all part of this educational cycle with clients. And it takes time. It's frustrating and then you get some of these other enterprise groups that just move at a slower pace to even talk a little further on that. I think some of these bigger enterprise clients are locked into contracts that are all coming due over the next few months or maybe over the next year, and they're starting to look around at what other opportunities are out there when the contracts come due. So I think the timing for us is great. I think I'll say it again, Gary, like where the manufacturing is, we're set up to take on anything. And after doing that last capital raise, we're in a financial position that's excellent with the ability to do that. I'm quite happy with the fact that we did the raise when we did with the uncertainty, obviously, going on in the world right now. I think it put us in a great place to you know what, just bear your heads in the sand and build the business.

Yes, that's great color. And maybe just last one for me. I know historically, in your adjusted free cash flow number, there's no maintenance CapEx deducted. And just remind me, maybe a question for Amin. Are those expense going through kind of OpEx currently? And maybe as you see your fleet age, how should we think about the replacement cycle cost for refreshing the current fleet, et cetera. I just want to dig through a little bit on the maintenance CapEx side and maybe just overall free cash flow outlook.

Yes. Like the maintenance CapEx, we don't disclose it separately just because it's not a significant number. So any like repairs and maintenance, any standard minor items that would run through the P&L, but any kind of major replacement, which we don't have to really do very often for structural components, like we don't have a plan to just swap out structures just because they're a 10-year life, that's what we're depreciating them at. So there's no plan on the structure side, the cameras. So largely have a 5-year warranty. They're good. The economic life is in that kind of 5 to 7 years, we think. And again, no plans to swap out any cameras unless there's -- they break and they're out of warranty. So that's why there hasn't been kind of any significant maintenance CapEx to disclose. And on the structural components, which is 2/3 of the cost of the unit, there's no plans to like swap them out over 10 years just because they're fully depreciated. The reality is those things will last forever. There's not a ton of moving parts and any like minor components that break like any electrical components, any solar panels, anything like that, we would just run through the P&L.

The third question comes from Sean Jack from Raymond James.

Just a couple for me today. So first one would just be, you guys have talked about the use of AI at the edge capabilities. how they've expanded efficiencies with alerts. Would you be able to quantify the impacts of this tech at all versus some of the original cameras that you guys were using?

Yes, 100%. I think Sean, it's really helped us in the monitoring side. The AI at the edge, it's object analytics now picks up cars, humans. We have quite a few different things we can do with that AI that's built into the cameras, loitering different apps that we have like that. And what it's done is it's helped us, I think, in the monitoring side, the number of staff we need at night during the day. The alarm count, we've been very diligent. We've -- the U.S. operations side is in our monitoring center in the U.S. right now. So we're pretty excited about that. And these guys are doing camera maintenance, making sure everything is working health checks. But the AI at the edge is what it's done is it's lowered our alarms to the number of towers. And it's really given us, I think, Amin, if you want to add to it, the amount of towers each staff member can watch as well.

Yes. It's probably gone up 3 to 4x. So when the fleet was about 400 to 500 units, John, just to quantify it, we were doing the same number of alarms as we are now and the fleet on average, 4 to 4.5x bigger than that timing.

Okay. Perfect. I appreciate that. And then I think I remember in some past releases, there were some discussions about some new branches more in the northern parts of the United States or other places that you guys haven't really ventured to yet. I just wanted to check in to see how those are moving along and if there's any update on that front.

Yes, absolutely. We've got a building that we've taken in a large city in the Northeast corner. I don't want to dive too much into it, Sean. And we've got staff hired. We've got staff actually hired throughout the Northeast of the U.S., some salespeople in cities. We're kind of building a hub up in Northeast corner right now. We've built out some more down in California as well. So it's -- we're right on track. We're getting where we want to have our coverage being able to move fast. We'll probably be opening up very quickly here, 2 or 3 more up in that Northeast region as well that Eastern Seaboard. So we're right on track with that. It's -- we've got a team now in place that basically they're the setup team. They go and we're interviewing people, finding managers, setting up the facilities. We have a team of 2 guys, that's all they're doing. They're kind of the build-out team, getting -- there's a lot that's involved, getting equipment ready. When I say equipment, our vehicles, our trailers, our loaders, all the things that take a part in opening up a branch and then getting good staff hired and bring them -- we bring them all into Houston, put them through a week of training on the sales side and the management side and teaching what the Zedcor brand is all about and move forward from there. Amin, would you like to add?

And I'll quickly just add that local touch and being able to deploy towers quickly is helping us would work. Some of the verticals like the retail space, yes, they'll take their time and go through RFPs and they'll be locked in contracts. But a lot of the kind of other verticals in the U.S., if they're unhappy if they're using a competitor or they have had a theft recently, they want to move quick and they want to solve the problem. And a lot of our competitors can't do that. So that's important for us.

Awesome. The last one for me. I'll just point out that margins shown through is particularly strong. I think SG&A definitely fared better than what we had in our model. I know that investments in the sales teams continue here, but just wondering how you guys expect kind of the SG&A line to progress over the year?

In 2026, you mean?

Correct. Yes.

It's going to grow for sure. I think as a percentage of revenue, it will obviously decrease, but we don't want to make any promises like if we see good salespeople or the opportunity to expand to new locations faster, we'll definitely take it. But obviously, the revenue is increasing as well. So in our models, like internally over the next 2, 3 years, as a percentage of revenue, the G&A drops quite a bit, just naturally like we don't need to add a ton more accounting staff. We don't need to add a bunch of HR staff, that kind of thing. And then as you get more mature regions, like I don't want to say Denver is fully mature, but Denver has gone from 0 to 40 towers and they haven't added a ton of G&A. So that's kind of what we hope -- that's kind of what we know will happen in the other regions as well.

I don't think there's any other questions, so we'll wrap it up. Thank you for everyone joining, and look forward to seeing everybody on the next call for Q1 shortly.

Thank you. Have a great day.