SSC Security Services Corp. reported FY/22 financial results on December 19, 2022, beating our expectations on revenue and Adj. EBITDA. Revenue for Q4/22 came in at $26.5M vs. our expectation of $24.1M, and FY/22 revenue came in at $49.7M vs. our expectation of $47.3M. Adj. EBITDA for Q4/22 came in at $1.4M vs. our expectation of $1M, and FY/22 Adj. EBITDA came in at $2.1M vs. our expectation of $1.6M. Gross margin came in at 18% vs. our expectation of 16% and finished the year at 17%. EBITDA margin came in at 5% for Q4/22 which was in line with our expectations. We are now expecting FY/23 revenue to come in at $112.8M (from $110), and FY/23 Adj. EBITDA to come in at $5.6M (from $6.9M). We expect a continuation of the $0.03 quarterly dividend throughout FY/23. Following the FY/22 release, SECU announced an NCIB for 1.2M common shares. We are adjusting our target price to $4.00 (from $4.50) as we hone our Adj. EBITDA expectations.

Financial Results

SECU posted a strong quarter and FY/22 with the first fully integrated results from the Logixx acquisition providing insights into the business we can expect moving forward. We are seeing the better-than-expected results as a result of SECU’s ability to allocate assets effectively to capture market demand. Following the the FY/22 results we had caught up with management to discuss the future of SECU and we were able to hone our expectations heading into FY/23.

Revenue was up vs. our expectations, and we are getting an accurate guideline to future performance with the integration of Logixx. Q4/22 revenue came in at $26.5, better than our Q4/22E of $24.1M, and up from $5.5M YoY (as a result of the Logixx integration). Moving into FY/23 we are now expecting a revenue growth rate of 10%. We view the improving labour wage conditions as a positive for SECU and see the potential for an upside to this estimate dependent on market demand. Q4/22 Gross margin was in line with our expectations at 18%, however we are now expecting a 15% gross margin moving forward into FY/23 as a result of our discussions with management. Q4/22 Adj. EBITDA came in at $1.4M vs. Q4/22E of $1M with an Adj. EBITDA margin of ~5%; we are now expecting a 5% Adj. EBITDA margin for FY/23 (from 6.3% previously). 

Headed into FY/23, we are adjusting our revenue expectations to $112.8M (from $110 previously) as a result of our clearer growth expectations. We are now expecting FY/23 Adj. EBITDA to come in at $5.6M (from 6.9M previously) due to our updated Adj. EBITDA margin expectations of 5%. Looking at comparable in the market we can expect a 5% EBITDA margin to represent a well-run company in the sector, and we believe in SECU’s strong management team.

We see some one-time additions to Adj. EBITDA and Adj. EBITDA margins as the remaining legacy business is spun-off. As a result of this spin-off and potential synergies between Logixx and SECU we are adjusting downwards our expectation of SG&A towards the end of FY/23 (H2/23). We are now expecting H2/23 SG&A costs to come in at ~20% of revenue vs. our previous expectations of ~23%.