ROUTE1 INC. ROUTE1 INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
As at November 22, 2021
The following discussion and analysis of the financial condition and results of operations (this "MD&A") of Route1 Inc. (also referred to as "we", "us", "our", "Route1", or the "Company"), should be read in conjunction with the Company's consolidated financial statements and related notes as at and for the year ended December 31, 2020. These consolidated financial statements, including comparatives, have been prepared in accordance with the International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and Interpretations of the International Financial Reporting Interpretations Committee ("IFRIC").
This Management Discussion & Analysis ("MD&A") has been reviewed and approved by the Company's Board of Directors prior to filing.
The information in this MD&A is current to November 22, 2021 and all amounts are in Canadian dollars, unless otherwise noted.
FORWARD-LOOKING STATEMENTS
The following discussion may contain forward-looking statements about matters that involve risks and uncertainties, such as statements of Route1's plans, objectives, expectations and intentions, as well as financial trends. The discussion also includes cautionary statements about these matters. You should read the cautionary statements made below as being applicable to all forward-looking statements wherever they appear in this document. In drawing a conclusion or making a forecast or projection set out in the forward- looking information, the Company takes into account the following material factors and assumptions in addition to the above factors: the Company's ability to execute on its business plan; the integration of acquired businesses; the acceptance of the Company's devices and services by its customers; the timing of execution of outstanding or potential customer orders by the Company; the sales opportunities available to the Company; the Company's subjective assessment of the likelihood of success of a sales lead or opportunity; the Company's historic ability to generate sales leads or opportunities; and that sales will be completed at or above the Company's estimated margins. This list is not exhaustive of the factors that may affect our forward- looking information. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking information.
Factors that could cause Route1's actual results to differ materially from the forward-looking statements are contained herein and include, but are not limited to, overall economic conditions, competitive pressures, successfully integrating acquired businesses and unexpected technology changes. Additional information concerning risks and uncertainties affecting Route1's business and other factors that could cause financial results to fluctuate is set forth later in this document, as well as elsewhere herein, and is contained in Route1's filing with Canadian securities regulatory authorities, available on the SEDAR website (www.sedar.com) under Route1 Inc. and on the Company's website (www.route1.com).
This MD&A includes additional disclosures on the critical accounting policies and estimates, additional disclosure on the quarterly selected financial information, additional discussion and analysis on the factors
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affecting the Company's financial performance, additional disclosure on future liquidity and capital needs including the addition of a tabular presentation of contractual obligations, additional disclosure on the last eight quarters, and details of related party transactions. The Company does not believe that any of the additional information provided, and that has not been otherwise disclosed in other filings, is material in nature.
INTELLECTUAL PROPERTY NOTICES
See https://www.route1.com/terms-of-use/for notice of Route1's intellectual property
OVERVIEW
Route1 is an advanced North American technology company that empowers their clients with data-centric solutions necessary to drive greater profitability, improve operational efficiency and gain sustainable competitive advantages, while always emphasizing a strong cybersecurity and information assurance posture. Route1 delivers exceptional client outcomes through real-time secure delivery of actionable intelligence to decision makers, whether it be in a manufacturing plant, in-theater or in a university parking lot.
With offices and staff in Boca Raton, FL, Scottsdale, AZ, Chattanooga, TN, Cincinnati, OH, Denver, CO, Glen Allen, VA, and Toronto, Canada, Route1 provides leading-edge solutions to public and private sector clients around the world. Route1 is listed in Canada on the TSX Venture Exchange under the symbol ROI and on the OTCQB in the United States under the symbol ROIUF.
HIGHLIGHTS
On March 29, 2021, the Company announced that it had acquired DataSource Mobility, LLC and its wholly owned subsidiary, VetSource Mobility, LLC (collectively "DSM").
- Founded in 2007, DSM is primarily a reseller of ruggedized tablets and laptops along with associated
accessories.
DSM is located in Clarksville, Tennessee and serves markets in the Southeastern United States including Alabama, Missouri, Tennessee and Texas.
On April 29, 2021, the Company announced its financial results for the fourth quarter and the year ended December 31, 2020.
- The Company announced the completion of a $3,000,000 private placement of units consisting of one common share and one warrant with an exercise price of $1.00 expiring June 16, 2022.
- The Company settled its litigation with VMWare and paid US$1,400,000 in full and final release from any further litigation.
On May 20, 2021, the Company announced its financial results for the quarter ended March 31, 2021.
- The Company announced the acquisition of DataSource Mobility, LLC.
- The Company announced that its wholly-owned subsidiary, Portable Computer Systems, Inc, was named "AutoVu™ Premier Partner of the Year - USA" by Genetec Inc.
On May 26, 2021, the Company announced that the University of Arizona would use automated license plate recognition to improve efficiency in vaccine delivery.
On June 1, 2021, the Company announced that it had received US$438,642 from its insurers, in full settlement for the cost of goods fraudulently taken from Route1 in the third quarter of 2020 and
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disclosed in a news release Route1 issued on November 25, 2020.
On June 28, 2021, the Company announced that it had received an order for 197 state-of-the-art Automatic License Plate Recognition ("ALPR") systems that will be deployed in patrol vehicles. The revenue to be generated by Route1 from the 199 ALPR systems purchase order is approximately US $1.3 million and will be recognized as the ALPR systems are delivered to the client which is expected to start in the third quarter of 2021.
On September 15, 2021, the Company announced that it had acquired Spyrus Solutions Inc. ("Spyrus"). Founded in 2018, and located in San Jose, California, Spryus delivers encryption, authentication, and digital content security products to U.S. defense and civilian agencies, international government, financial, and healthcare enterprises. It develops and manufactures cryptographic products, including the SPYCOS smart card operating system, enabling strong protection for data- in-motion,data-at-rest and data-in-process.
On September 24, 2021, the Company announced that it provided the TSX Venture Exchange (the "Exchange") its Notice of Intention to move forward with a further normal course issuer bid ("NCIB"), subject to approval by the Exchange.
- Route1 may, during the 12-month period commencing September 28, 2021 and ending September 27, 2022, purchase on the Exchange up to 1,985,473 common shares in total, being approximately 5% of the outstanding common shares.
- The price which Route1 will pay for any such shares will be the market price at the time of acquisitions, provided, however, that Route1 will not pay more than $0.75 per common share.
On October 7, 2021, the Company announced a stock option grant.
- It granted an employee 250,000 stock options each with an exercise price of $0.50.
- The stock options will expire on October 7, 2026 and will vest thirty percent on the first anniversary, thirty percent on the second anniversary and the remainder on the third anniversary.
- Under the Company's stock option plan, 10% of the issued capital is reserved for issuance for a total of 3,813,996 options. Including the above grant, a total of 3,025,000 options are currently outstanding under the Company's stock option plan.
On November 1, 2021, the Company announced that Alex Shpurov has been hired as Senior Vice President and Chief Technology Officer ("CTO") and will start on November 8, 2021.
- Mr. Shpurov brings more than 25 years of experience in delivering enterprise solutions in multiple domains including blockchain, information security and artificial intelligence with a strong focus on the finance, banking and capital markets verticals.
- Yamian Quintero, Route1's current CTO, will leave the Company on November 19, 2021.
BASIS OF PREPARATION
Route1 acquired DataSource Mobility, LLC. and its wholly owned subsidiary, VetSource Mobility, LLC (collectively "DSM") on March 29, 2021. No operational activity occurred between the acquisition date and March 31, 2021. Financial results of DSM have been included in all subsequent periods.
On September 15, 2021, the Company completed the acquisition of 100% of the outstanding shares of Spyrus Solutions, Inc. ("Spyrus"). Spyrus has been included in the Company's consolidated financial statements from the date of acquisition to September 30, 2021.
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The interim condensed consolidated financial statements of Route1 include its wholly-owned subsidiaries, Route 1 Security Corporation, Group Mobile Int'l, LLC ("GMI"), Portable Computer Systems, Inc. ("PCS"), DSM and Spyrus. Route1 acquired GMI on March 22, 2018 and PCS on September 28, 2019.
NON-IFRS FINANCIAL MEASURE: Adjusted EBITDA
Within this MD&A, we use the term Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, stock-based compensation, patent litigation, restructuring and other costs). Adjusted EBITDA does not have any standardized meaning prescribed under IFRS and is therefore unlikely to be comparable to similar measures presented by other companies.
Adjusted EBITDA allows us to compare our operating performance over time on a consistent basis. We believe that certain investors and analysts use Adjusted EBITDA to measure a company's ability to service debt and to meet other payment obligations, or as a common valuation measurement in the technology industry.
The table below reconciles Adjusted EBITDA to operating profit before other income (expense) for the quarters presented.
For the Quarters Ended | |||||
In thousands of Canadian dollars | Sep 30 | Jun 30 | Mar 31 | Dec 31 | Sep 30 |
2021 | 2021 | 2021 | 2020 | 2020 | |
Adjusted EBITDA | $465 | $760 | $764 | $768 | $778 |
Depreciation and amortization | (310) | (316) | (342) | (325) | (327) |
Stock-based compensation | (105) | (173) | (201) | (171) | (76) |
Operating profit (loss) before other income (expense) | $50 | $271 | $221 | $272 | $375 |
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SELECTED FINANCIAL INFORMATION
The following table outlines selected unaudited financial information of the Company on a consolidated basis for the three and nine months ended September 30, 2021 and 2020.
(in thousands of Canadian dollars, | For the Three | For the Nine | ||||||
except per share amounts) | Months Ended | Months Ended | ||||||
Sep-30 | Sep-30 | Sep-30 | Sep-30 | |||||
2021 | 2020 | 2021 | 2020 | |||||
STATEMENT OF OPERATIONS | ||||||||
Revenue | ||||||||
Subscription revenue and services | $2,297 | $2,599 | $7,725 | $7,046 | ||||
Devices and appliances | 4,960 | 6,523 | 12,410 | 15,401 | ||||
Other | 31 | 25 | 102 | 32 | ||||
Total revenue | 7,288 | 9,147 | 20,237 | 22,479 | ||||
Cost of revenue | 4,696 | 6,134 | 11,787 | 14,319 | ||||
Gross profit | 2,592 | 3,013 | 8,450 | 8,160 | ||||
Operating expenses | ||||||||
General administration | 1,518 | 1,456 | 4,442 | 4,297 | ||||
Research and development | 248 | 189 | 653 | 563 | ||||
Selling and marketing | 671 | 917 | 2,335 | 2,606 | ||||
Total operating expenses before stock-based | 2,437 | 2,562 | 7,430 | 7,466 | ||||
compensation | ||||||||
Stock-based compensation | 105 | 76 | 478 | 326 | ||||
Total operating expenses | 2,542 | 2,638 | 7,908 | 7,792 | ||||
Operating profit (loss) before other income (expense) | 50 | 375 | 542 | 368 | ||||
Other income (expense) | ||||||||
Patent litigation | - | (381) | - | (552) | ||||
Acquisition expenses | (39) | 2 | (79) | (14) | ||||
Interest expense | (131) | (30) | (222) | (110) | ||||
Foreign exchange gain (loss) | 64 | (44) | 52 | (33) | ||||
Gain on litigation settlement | - | 218 | - | 218 | ||||
Other income (expense) | (11) | (620) | 233 | (620) | ||||
Loss on asset disposal | - | - | (3) | - | ||||
Total other income (expense) | (117) | (235) | (19) | (490) | ||||
Income (loss) for the period before income tax | (67) | (479) | 523 | (743) | ||||
Income tax recovery (expense) | 6 | (49) | 14 | (28) | ||||
Net income (loss) for the period | (61) | (528) | 537 | (771) | ||||
Other comprehensive income (loss) | ||||||||
Foreign currency translation | 118 | (40) | 30 | (11) | ||||
Comprehensive income (loss) | ($57) | ($568) | $567 | ($782) | ||||
Income (loss) per share | ($0.00) | ($0.01) | $0.01 | ($0.02) | ||||
Diluted income (loss) per share | N/A | N/A | $0.01 | N/A | ||||
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Route1 Inc. published this content on 22 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 22 November 2021 23:18:07 UTC.
