Redishred Capital Corp (Pre-Merger)

XTSX:KUT

Earnings Call Transcript 2021-Q4

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the RediShred Capital Corp. Fourth Quarter and 2021 Year-End Financial Results and Business Update Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Jeffrey Hasham, Chief Executive Officer. Please go ahead.

[Jeffrey Hasham, executive]

Thank you very much. Good morning, everyone. I want to thank everyone for joining us this morning. Looking at my window in Toronto, we finally have normal spring weather. So for those of us in Toronto, welcome to April. April is one of our favorite months in the shredding business, so we'll talk a little bit about that later in the call.

Wanted to start by acknowledging many of our employees who are on this call and the many employees that have contributed over the last couple years, 2020 and 2021. 2021 was very much a solid year, the culmination of a lot of hard work, a lot of moving parts. The company found a way and then did more than that and thrived during the COVID pandemic, and it's nice to see the COVID pandemic being put into the -- very much into the rearview mirror here in 2022. And we certainly saw a lot of signs of that in 2021, and the company, RediShred Capital Corp., did quite well during that time.

For the year -- actually, let's start with the quarter first. For the quarter, we sort of -- if we look at organic same location EBITDA and consolidated EBITDA, these grew 40% and 44%, respectively, versus last year. And to no surprise, obviously, on a same-store basis, that is quite a good mark. And obviously, COVID was still around last year in December of 2020 -- fourth quarter of 2020. And for us to climb through that and really crush that number was excellent. And then on the consolidated EBITDA, same thing, both the organic plus the acquired really helped us beat the prior year.

And of course, when you compare us to 2019, 2019 is not even close either. So it was a really solid year for EBITDA and the growth in EBITDA.

From a top line perspective, Q4 was $10.4 million. That's a record for us. Q4 is a softer quarter from a sales and profitability perspective. Having said that, we still were well ahead of last year on both fronts, which was great, and full year revenue of $36.2 million. And, obviously, the American acquisition that we did in December, we only had 1 month of revenue from that. So that's quite pleasing to us because 2022, obviously, we've been integrating that acquisition, and that's been going fairly well. And it's an elephant, but we've got the team to do it, and they've been doing a good job.

I will turn it over to Harjit in a moment. Harjit's our CFO. He'll provide more detail and color on the financial side of it, of course, but let me just talk a little bit about the fourth quarter and some of the significant activities that took place and really how that's setting us up for 2022. And I'll talk about our strategy for 2022 at the tail end of this call.

I think number one is this American acquisition that we did conduct, we had a month's worth of results in there. This is a major opportunity in the New York/New Jersey region, and we'll talk about that, not only from a routing perspective but also from a paper perspective, just from a overall market presence perspective, we are now the third-largest player in the New York market by far. So that's number one from a branding perspective.

From a routing perspective, I think it's very easy to see. For many of you, you've have seen our investor presentations, the overlay is strong, and then we'll talk paper later on because the paper opportunity is there as well. So, so far, so good on American.

Number two, we did conduct an equity raise. So we held off for 2.5 years on an equity raise, and that was a good decision. We had cash on hand. We had to get through COVID. The bank was working with us and was very cooperative, and we were able to conduct a number of acquisitions over the year of 2021 without conducting an equity raise.

Having said that, the pipeline remains good and healthy, and we need the equity to continue to execute on our strategy. And again, I'll remind those new folks on the call of our strategy. It's well-defined. It's a strong strategy. And so I'll remind people of that. We

[Technical Difficulty]

[Operator]

Please stand by while we reconnect Jeffrey's line. We have Jeffrey back on the line.

[Jeffrey Hasham, executive]

Good morning, everyone. Sorry about that. I think you're going to have to invest in a new VoIP telephone system here. For whatever reason, it malfunctioned on me. Not on my CFO, so maybe it was telling me something. So my apologies.

I think I left off at American. And I think, again, we'll talk a little bit more about American, but American is a great acquisition for us. It's a number of opportunities from a routing perspective, a paper bailing perspective and a branding perspective. So I think that's positive. We did conduct $8.6 million equity raise, as you know. Many of you participated. Thank you for your support.

That's -- we went 2.5 years without an equity raise. We conducted a number of acquisitions in late 2020 through 2021 without raising new equity. We're able to finance that effectively through cash reserves and through bank financing, while staying well within debt covenants, which Harjit will talk about in a moment. So that was a very positive thing. But we got to a great healthy pipeline, and we're going to need that cash to continue to execute on that program. So we're pleased that we were able to hold off as long as we did, and we're pleased that we have the capital to move forward.

We did complete a small acquisition in Chicago. That's being integrated quite well. So it doesn't move the needle right away, but you'll see that over time, those are very good margin improvers. The route density kicks in, and that one is being integrated quite well, small deal, $250,000, $300,000 deal. So -- but we like those. Those small ones are part of our game plan, fragmented industry. We know that this is a fragmented industry, lots of targets. And these little targets, there's not a lot of competition for them. We'll talk about that in a little while.

We did implement a COVID vaccination incentive program. Very important for us to make sure that our people are safe when they're entering hospitals, health-care facilities. We want them to be safe. And we had a very positive uptake there, thankfully because Omicron hit us hard in the fourth quarter and a little bit into the second -- first quarter, sorry. And thankfully, they were vaccinated, so the time off was relatively short for most of our folks. So that was a $55,000 investment in our people. But that allowed us to keep our U.S. government accounts and many of our health-care accounts. So it was a very good investment in the long run.

Let me turn it over to Harjit. Harjit's going to go through all the fun stuff in terms of our financial results. So Harjit, I'll turn this back to you.

[Harjit Brar, executive]

Okay. Hi, everyone. Good morning. And as Jeff was saying, I'll go through some of the financials, both for the fourth quarter and the year ended 2021. So as Jeff alluded to, the fourth quarter was a bit softer than we were expecting, but nevertheless, very strong. And the year ended 2021 was also very strong.

So if we look at it from the fourth quarter of 2021, on a consolidated basis, we generated revenue of $10.4 million, had EBITDA of $1.7 million and operating income of $412,000. So our margins, they remained strong, even with some of the impacts we had from the Omicron variant, especially in the latter half of December.

And if you look at it from the year-end of 2021 perspective, we generated revenue of $36.2 million, which is obviously a record for us, with EBITDA of $9.2 million and operating income of $4.7 million. So we look at that from a sort of on a sort of per-share basis, operating income, it was actually $0.059 for the year. That's the income statement.

And if you look at it from a cash flow perspective, again, we had positive cash provided by operations of $2.1 million for Q4 and $8.4 million for the full year 2021, which was driven by our strong income statement and EBITDA results. And as Jeff noted, we also completed an equity raise and -- for gross proceeds of $8.6 million, net proceeds of $8 million and that and in conjunction with the utilization of our credit facilities, provided us with strong financing cash flow. And if we sort of quantify that, that was $14.3 million for the fourth quarter.

We continue to invest in our business and grow the business. And so we did utilize cash for investing activities, $7.9 million for the fourth quarter and $15 million for the full year 2021. And so these growth initiatives, obviously, acquisitions, also investments in tangible and intangible assets from both the sustain and grow the business.

If we look at it from a balance sheet perspective, we had strong working capital. So we finished the year at December 31 with $4 million in working capital, and that also includes cash of $9.7 million, and that's partially also due to the equity raise. And so obviously, with the strong balance sheet, strong income statement, we were well within all our covenant requirements, and we're very well positioned to execute on our plans, including our strategic objectives for 2022, which we have outlined in our MD&A.

And so with that, I'll let you -- I'll turn it over to Jeff to provide some more color on the 2022 results -- or expectations, I should say.

[Jeffrey Hasham, executive]

So look, I think '21 was our foundation, for sure, to set us up for 2022. Again, when you look at that, we bought in '21 2 franchisees, really on December 20 -- 30 of 2020, we bought also the franchisee in Massachusetts, and then, of course, we bought American to close out the year. So we've been very busy bringing on our new locations. And we're going to continue to execute on that plan as well as now continuing to sort of look at these independents, right, because these independents have gone through a real tough time. And of course, the good news of these independents, I mentioned MDD earlier, there's nice synergies there. There's real synergies there because we really don't need office marketing their facilities other than beyond a month or 2, especially the smaller they are, the less of it you need.

So you get those real synergies out there. And as you know, our customers tend to be very sticky. And then when you add other services that we can provide, that enhances the stickiness. So overall, when you think of the strategy and the execution of the strategy, we're getting the benefits from that.

Having said that, we have to be able to also recognize the challenges that exist in the marketplace, and we have to react to them appropriately. And of course, inflation is a reality. We have faced upward pressures recently on fuel and, in particular, driver wages. I think the good news right now, we are seeing a little bit of easing up in the driver market. So I think that's really good news for us because, obviously, I think people are getting back to work and realizing can't live off the government or other means.

Now fuel costs, and many of you have asked this question and the worry about fuel costs, yes, fuel costs have gone up. For us, the very good news is paper prices are the perfect hedge and, in fact, are more than a hedge at the moment. There has been a positive correlation between the 2. They have moved in tandem for the most part. Only once in my 17 years has paper gone down and fuel gone up. And in fact, fuel is easing off just a little bit, which is good. But right now, paper, as of March and April, are back to all-time highs. And why have the paper prices rebounded? And many of you will recall in 2019, early on, our all-time high was 2018, and then we dropped for 1.5 years.

Look, the reopening of the economy has so many things going for it from a papers perspective. Travel is peaking. That away market is there. Domestic mills have caught up to the fact that China is taking no paper at the moment or very, very little, but the domestic mills are there, and they're short on supply. So all of those things are driving paper prices up. And those are much more positive elements than before because, again, we're not reliant on -- as much on foreign markets, in fact, way less reliance on foreign markets for paper.

And then on top of that, we're bailing way more paper where our tonnage is well up over '19. And through the American acquisition, we have 2 new baling facilities, one in Long Island, New York, and one in New Jersey. And so we have much better negotiating power with the paper brokers and paper mills. Those paper -- those bailing facilities are taking more and more of the, let's call it, the PROSHRED paper, and they will continue to do so as we integrate these routes and that integration is going well.

So those are very positive things moving into 2022 that we continue to do these acquisitions. We continue to bring new tonnage. We continue to bail more paper. If you think back to 2019, we only had 1 bailing facility in our corporate portfolio, and that was in Kansas, and they'd only been in our portfolio a number of months. And now we have Kansas, Chicago, New York, New Jersey, and I think there'll be more to come. As we grow, there'll be more to come.

Talent. As I mentioned earlier, Talent is important. We want to keep our talent, whether they're our best drivers or our very best and brightest at the head office and our field management. And we've done a good job there. Driver inflation is real, and we've had to accommodate for that. However, we have the advantage of putting through price increases, and we did one late in '21, and looks like we're going to be doing one here fairly short order in 2022.

We are not a fan of fuel surcharges, delivery charges, zone surcharges for many reasons. Number one, it irritates the client, and that's not one of our values. Our value is to make it easy for the client, number one. Number two, when fuel comes down, you got to give it back. And so we believe in straight-up price increases. That allows us to have a bit of cushion and allows us to continue to maintain our margins. So those are very positive things that we're looking at.

Other challenges, but here's the good news. One challenge that's out there and we're affected but not affected as much is truck parts and supplies, particularly for repair and maintenance of older trucks. We're very thankful. We have a modern fleet, and we continue to modernize that fleet. And we took this decision a number of years ago, worked with our Chairman, deserves much of the credit for working with us and looking at our fleet and how do we think through that. And we came to the realization that the cost of repair and maintenance and downtime well outweighed the cost of having a new fleet, and of course, then fuel efficiency today is very critical.

So we've done that, and we are going to continue to modernize our fleet, continue to bring that average age of the truck down well below 5 years over time. And good news also is we have great relationships with our suppliers. So we're able to obtain manufacturing slots, parts, service. We have our own preventive maintenance teams that now we have some size that simply rotate around and keep our trucks on the road. So as we update the truck fleet, we'll turn in the older trucks or migrate them to backups because it is much more challenging to procure parts for these older trucks. They come from overseas. And so having a newer fleet mitigates them heavily from these risks.

So again, the good news is we took some decisions a number of years ago, and they're paying off, and they're going to pay off in 2022 as well. So -- and beyond because we're going to continue to go down this pathway on the truck path. And again, I think the decision that we made in 2018/2019, it was a very mathematical decision. Maybe someone had some foresight because look, these parts supply challenges are real, and we've been able to mitigate against that. And I think, again, when we think of those independents and their weaknesses, one of their weaknesses they tend to have older fleets. One of their weaknesses is that they tend to be more subject to the volatility in paper prices.

And of course, one of their weakness has been COVID has taken probably a harder toll on them. So bringing that back to our strategy of buying independents and buying some of these small ones where the market for them to sell is less, we are in a good position. So stay tuned as we continue to execute on that strategy. Some of these underlying factors are really providing an opportunity for us.

Last, and I think it's very important, we are making investments in our workflow software. We are looking to continue to automate and streamline our operations. So -- and you've probably heard this from me a number of times. And for those of you that have worked with us a little more intimately, creating the right technology stack starts with workflow for us and getting people and trucks -- and I'm quoting our VP of Ops, "people and trucks to our clients," that's what we do, number one. Of course, we're also in the scanning business, so taking their paper and digitizing it and storing it, well, that requires the right workflow solution as well.

So right now, we're investing in the PROSHRED, routing, workflow solution. This is going to provide collection automation. This is going to tie in into our marketing automation and CRM platforms. We are upgrading the infrastructure around that, but we have a view to move to an Azure platform, and we've taken the first steps there.

So overall, as we look out in '22 and '23, we are making investments now to deploy these solutions, but these are going to be very positive outcomes for us as we -- it's going to allow us to scale, and that's number one. It's going to allow us to scale and really go after the real synergies that are there when we conduct acquisitions. It's also going to help our existing operations build their revenue and build their EBITDA.

So overall, we're pleased with '21. We've been able to deal with the Omicron variant, which did have impacts to our routing, to our clients, to our people. That was a real deal for us, no different than the airlines. If you remember the airlines in late December and early January, they were very much struggling. We had the same challenges.

However, that's in the rearview mirror now. The team did a very good job of mitigating and planning and working through that. Really demonstrates the need for a good workflow software. And so with all that, can't thank everyone enough for their support over the many, many years. And finally, we got to '21, and '21 was a solid one. '22 we're excited about. Despite some of the challenges that I mentioned, I actually think there's some great opportunity because of these challenges and to be where we are and doing what we're doing and going after the strategy that we have, grow what we have, conduct acquisitions, and right now, deploy some technology. That's going to really help us going forward.

So I'll pause. I'd love to open it up to some questions.

[Operator]

[Operator Instructions] The first question comes from Amr Ezzat with Echelon Partners.

[Amr Ezzat, analyst]

My first one is on sales. Both paper shredding and scanning sales are up from Q3 when your Q4 is typically seasonally weaker. And even when I take out the contribution of American Security out of the numbers, it seems like you didn't have the same sort of seasonal dip in sales. Then what perplexes me more is, in your prepared remarks, you said you -- like the past I think the last 2, 3 weeks of December were kind of tough. So what is driving this performance?

[Jeffrey Hasham, executive]

Yes, look, I think, number one, the -- if you sort of think of those acquisitions that we bought in 2018 and 2019, they were quite large acquisitions. The Chicago location, New Jersey, Kansas, Connecticut, so there's about 4 locations now. All of them are doing well. All of them performing well. They were some of our largest locations. Of course, we added the scanning piece to it as well, which was great. And so all of those things played a role. We've also -- in '21 -- so in 2020 -- what we were going to do in 2020, we've done in '21, right? So everything got delayed. What we did in -- what I'm doing do in 2020 is, all these acquisitions wanted to invest in sales, resources and tools and the like. And we really delayed that till '21.

And really, we didn't get moving in '21 on these investments till the third and fourth quarter of the year. And that's why I'm very bullish actually really about '22 because all those investments in those types of folks, they're going to come to fruition in '22 and '23 as much as they did in the fourth quarter of '21, and we can see evidence of that. So that was a positive for us, of course.

And so for me, yes, it was a good quarter. It was -- it could have been better. I mean, Omicron certainly played a big role in terms of the last 2 or 3 weeks of the year, really. It did play a role in our results being softer than we thought they would be. Good news is that sort of -- that was a onetime thing, really. And again, that's really in the rearview mirror now. So it was nice to see that all the things that we've been doing over the last 4, 5, 6 months started to come to fruition in the fourth quarter on the sales side.

[Amr Ezzat, analyst]

Okay. Fantastic. You spoke to gas prices and other input cost inflation. Two questions there. Number one, are the price increases really covering the inflationary pressures? Or should we expect some sort of margin erosion, even if it's temporary? Number 2 question is, I know historically, fuel was -- you guys were running at 4% to 6% of total sales. Where do we sort of sit now?

[Jeffrey Hasham, executive]

Yes. Fuel is closer to 6% to 7% at the moment. Having said that -- and probably closer to 6%, actually, but let's do 6% to 7% just to be conservative. So right there, you can see there's a little bit of margin erosion, but that actually -- that margin erosion is recently being offset by the paper prices certainly coming up. So in the new tonnage, the increased tonnage, the paper prices have really been offsetting that.

Now having said, let's put paper to the side for a moment. One of the lessons of 17 years is you operationally want to be making solid margin, putting paper to the side. And that was one of the things that we -- if you look back in '18 and '19, we took that moment when paper prices were higher to work with the operation. Thank god we did because that really carried us through COVID.

We're doing that again and sort of look at why are we putting new workflows offer in, be more efficient on routes, right? So -- and part of that strategy, part of that game plan is to put price increases. So there's 3 types of price. The first price increase is going back to all our existing clients that are not under a contract that prevent the price increase or anyone relatively new in the last 3 months essentially and going back to them and putting through a price increase. That's our existing recurring customers. That's number one.

Number two, our go-to-market price for new clients on scheduled is higher. So that, we've gone to a higher pricing right out of the gate because it's why would we not do that? And number three, the pricing on purge, which is our unscheduled revenue, that is more elastic because, right now, what we -- again, people don't learn from the past is sometimes price purge is lower because paper is higher.

We're never one of those to go to the bottom. However, if we sense that they're a very good potential good recurring client, we might come in a little lower. We know we're making some paper money and convert them, right? Because that's really the ultimate goal is to convert them into the recurring revenue that we're looking for.

Having said that, right now, we're not typically getting into too many pricing challenges in terms of competitors low-balling things. I'm hoping that the industry learned over the last few years of volatility in the pricing of paper. So generally, our go-to-market pricing is stronger now than it was 6 months ago, 3 months ago. So we're -- again, short term, yes, there will be a little bit of toughness, but we're already addressing that. And so I think longer term, the rest of this year and into next year, we're in a good position.

[Amr Ezzat, analyst]

Understood. And short term, we're talking about a quarter or 2 as opposed to like a full year?

[Jeffrey Hasham, executive]

Yes, yes -- no, we've got our folks working through the databases and working on moving price increases through. So I mean, we're -- price increase is going to be happening in intimate manner, call it, end of Q2 -- middle of Q2. We're already a month into Q2. So we're working on those things, that's happening and yes, so this is very short term.

Again, the nice thing is that natural hedge of paper is really helping us at the moment. So again, you got to take the moment when that's going well to do these other things because you just don't know when paper goes down. And so we're not taking this moment for granted as a management team.

[Amr Ezzat, analyst]

Fantastic. On G&A, I mean, you spoke to that quite the pickup in Q4, are these just the foundational investments you were speaking to at the tail end of your remarks? Or are there any unusual there that I should be thinking about?

[Jeffrey Hasham, executive]

Yes. There's a few unusuals there. I mean, yes, there's -- we've invested -- we delayed a lot of investment now, technology, HR, those types of investments in good people, good uses. You don't need more of those, right? They'll amortize out with American coming on board and all of that. Some of them were onetime in nature. So if you think about the onetime in nature items, Omicron was onetime in nature, as an example.

The other onetime in nature is the migration of our professional fees. Those professional fees, we have to do quarterly reviews now with a shelf perspective. And again, our long-term goal is to get on the big board, so quarterly reviews are a reality for us. But this year, we had to do quarterly reviews not only this year but the comparative year. So professional -- there is some onetime professional fee costs that are there that probably won't repeat. Our estimate is probably a bit more over $100,000 in those fees. Some of the other professional fee investments is transfer pricing work that we're doing to be tax-effective.

So again, those are -- those fees will continue a little bit into 2022 but not longer term. So there's a little bit of onetime in there. The vaccination bonuses that we provided, those were onetime in nature. So that -- the good news there is there was a number of onetime costs in the fourth quarter, and we took it on the chin in the fourth quarter. But again, going forward, those won't be there. And I think overall, we've got a good [indiscernible] map on -- Omicron is in the past. I think that was [indiscernible] in the last couple weeks that we had to contend with from a onetime cost issue, not G&A. The G&A had some -- a number of onetime costs that now are in their rearview mirror.

[Amr Ezzat, analyst]

Great. Then maybe one last one, how should we think about the pace of your M&A in '22, especially when I think about paper prices being so high, are seller expectations out of whack with what you guys are willing to pay?

[Jeffrey Hasham, executive]

They can get there, although the M&A -- and I was just at our industry association last week, there at the conference. Good M&A activities. The brokers are busy. The brokers know it's interesting because one of our capital markets friends said there's going to be some momentum, and people are going to start to know who you are in the industry. And that certainly came to bear this time around. And I think -- yes, paper has gone up, but I think people are aware that it can go down. The independents are certainly feeling it.

I think one thing that is good for us is a lot of the smaller independents didn't come to this conference because they were dealing with labor issues. They were dealing with truck issues. They're dealing -- they were dealing with their customers, right? And so they couldn't come to this conference. So that was a bit of an interesting observation that I saw at this conference. And so I was very pleased that -- but that's -- we saw more interaction with the brokers. I had good interaction with future pipeline that we're developing. And then again, these independents are unfortunately, they're just struggling with the current environment.

So I think the pipeline is going to continue to develop quite well of independents and, of course, franchisees, we continue to work with them as they wish to exit. And again, the demographics for both franchisees and independents are getting older as well. So a lot of good things for us. I've been very busy on the M&A development front, which is great. That's what we want to be doing. And we've got a great operational team taking care of the day-to-day operationally. Yes, I'm pretty happy that we are where we are, and I view the paper side honor as a little bit of a blip.

[Operator]

The next question comes from David Ocampo with Cormark Securities.

[David Ocampo, analyst]

So I guess my first question here is sort of on your targets. You have a target for shredding here, but I didn't see anything for scanning, and you guys did note that you do have a new large customer now in the bag. So how should we be thinking about the growth in that segment for this year and longer term into '23?

[Jeffrey Hasham, executive]

Yes. You can see here, I mean, scanning really -- it was really good for the year. And so we're looking at -- and that's a good point, actually, that we didn't put down a scanning target. I mean, we did almost $2 million in 2021 in scanning. And we were thinking it was going to be closer to just over $1 million, frankly. That was what we were thinking. So the scanning piece is going to be interesting. So we're looking at very strong growth there, 15%, 20%. I'm thinking that that's a good number on the same-location basis.

You can see here even on the same while we don't have much same location, David, so I really can't speak to that from the prior year. But we're also looking in our pipelines, and we have some of the same pipeline some scanning opportunities from an acquisition perspective. So it's a good point that you make. Scanning is certainly an area of investment, and the good news is the investment isn't heavy. We don't buy $0.25 million trucks. Really, the investment has been in a number of areas. So we'll talk about equipment, obviously, scanning and the like.

Our scanning leadership team this year actually installed a new software program that is actually allowing us to do scanning and index -- more or less simultaneously at the same time, which is enhancing our margins, our labor margins. So that's happening as well in the scanning business. So a number of things now that, as we scale there, we're going to hopefully be able to grab some operating leverage there and drive better margins. So yes, I don't have an exact answer there. We certainly were looking at very strong growth on the same-location basis in scanning. So stay tuned there. That's something for me to put some thought into and perhaps get a little bit of targeting out for everyone.

[David Ocampo, analyst]

Yes. No, that's good color. And I guess from my understanding, how much visibility do you guys have on scanning? Is it these one lumpy type contracts, and then they fall off a cliff in the next quarter? Or is there a little bit more of a recurring nature around it?

[Jeffrey Hasham, executive]

Yes. There's really 3 classes of revenue in that area. The number one, we do have recurring clients. We have clients that [indiscernible] been with us for years and years and years and really were part of their workflow. They get a box. They get it to our office, and we scan. And so we're sort of part of that workflow.

That is not the biggest component of our revenue, but that is an area where we're looking to do more and more and market into. So it sort of like the infancy of shredding businesses. Shredding businesses typically start unrecurring event-based, and then they work with their clients to convert them to recurring, and that's sort of where we are in the scanning business.

We have a lot of what we would call repeat and repeat meaning you get a $400,000 contract, and you execute that over 3 or 4 or 5 months. And then you do it again, you do it again [indiscernible] months later, and you do it again 6 months later, and so on and so forth. We have a lot of that. A lot of that repeat actually out of the government space. So that's good. And then you got events. We do have event-based scanning where someone says, look, just clear me out, and I'm done. That's actually probably the smallest piece.

Most of our customers are actually repeat. I'd say about 65% of our customers are repeat customers. So that's a good thing that we have these relationships. And so now where are we going with that? What are we doing? All of our salespeople and all of our markets are trained to sell scanning.

The nice thing is with scanning is that we can get a sizable enough contract, we can turn up. We can spin up a scanning operation in any corporate location in 4 to 6 weeks. So that's the beauty of it is that we're not waiting for trucks, and I haven't been investing $0.25 million stuff. We can move relatively quickly. If it's in the Northeast, even better because we can -- if something is in New York or Connecticut, a lot of the times, we can just ship it into Springfield, Mass., and do it from there. But we are actually looking at creating some capacity in the New York/New Jersey market may well utilize the real estate we have there, so we are looking at those.

And then we're also looking at in the Midwest as well. So scanning, we're not -- not only are we going to get hopefully, knock on wood, more revenue from our existing locations that we're already in, but just by very way of sales and marketing efforts, we're hoping to get more scanning opportunities and deploy scanning operations in our existing corporate locations that are not providing that service.

[David Ocampo, analyst]

No, that's really good color there, Jeff. And then maybe a last one for me, just shifting back to just shredding here. I think in the previous quarters, you talked a little bit about your metropolitan clients and the percentage that have not returned back to the office. I was wondering if you can give me an update on that. And have you seen sort of their shredding needs relative to prepandemic levels and they do come back, it's on a less frequency basis? I'm just trying to get a better sense on how much of that organic growth that you guys have in your guidance or target levels there. Is it from customers just ramping back up and versus market share gains?

[Jeffrey Hasham, executive]

Yes, 2022 is going to be primarily market share gains. The prediction that I did have originally way back in 2020, David, you remember as I thought 10% of our clients would forever disappear. I think it's closer to 5% that would forever disappear. And what I mean by forever disappear, they either disappear or their frequencies are lower so that service opportunity disappears. And we're sort of there now like most of our clients came back. I mean, there was a bit of a pause again in -- if you look in Manhattan, it was cranking. I was in Manhattan in December, it was a zoo.

I was there in January and it was very slow, right, on the front sort of slowed it back down. And then I was back there in February, and it was back to being busy. And what we have seen, and I use Manhattan, as it's our most metropolitan market, we're more or less -- we're not all the way 100% back, but 90-plus percent. And that one is the toughest one. So you sort of think about that being the toughest one then Chicago and Miami and some of it in Atlanta, those ones are generally easier to contend with.

But our 2022 view is that it's -- we're not really counting on any more COVID comeback, so we're really counting on organic, real organic growth. And I mean, '21 was really the story. '21 story was organic growth, like new customer acquisitions. The sales team, the sales leadership, the marketing leadership and the team that they have did a wonderful job of grabbing the sales, which is great because now we can enhance our right density. We have new workflow software, all the things I've already spoken to. So it's a pretty good position that we're in.

In '22, right now, I mean, I look out, and I go, this is a good position that we're in right now with what we've done. That doesn't mean we're not going to have challenges, as I said before, we're -- we have to deal with them. We dealt with -- we can deal with COVID in 2020, we can deal with inflation and some supply challenges, and knock on wood, the team has been doing a good job with that.

[Operator]

[Operator Instructions] The next question comes from Nick Corcoran with Acumen Capital Partners.

[Nick Corcoran, analyst]

Just a couple quick questions from me. So of the onetime costs in the quarter, can you give any indication how much Omicron added in Q4? And how much of that may be spilled into the first quarter as well?

[Jeffrey Hasham, executive]

Yes. I mean -- and really, there's 2 components to that, Nick, right? There's the lost service opportunities, and then, of course, the increased overtime costs that we incur, and by no means were they small. We've estimated between $200,000 and $300,000 of impact. Good news is onetime impact, some of that, obviously, that was really in the December time frame. January the first -- again, the first 2 or 3 weeks, we would have seen something similar. And -- but that hurt us certainly in the fourth quarter.

So you think of a professional fees that's onetime in nature. You think about the vaccine. The vaccine shot incentive program. We have to do that. Otherwise, we would have been at risk with a number of our larger clients. And we have to do that, frankly, for the protection of our people.

And you know what, I think it could have been -- if we didn't do that in November, Omicron would have torpedoed us. It would have been really, really bad. But we literally had 90% uptake on our incentive program. We didn't do that. I mean, I think it would have been really, really bad. So that $200,000 or $300,000, I consider ourselves lucky that we -- because we were able to get people back fairly quickly after it sort of went through everyone. I mean, it went through me, right? My whole family had it. I'm sure I'm not the only one on this call that you got hit by it.

So thankfully, we've done that. And right now, even with this new wave here, knock on wood, it hasn't hurt us too bad because, again, I think everyone's been vaccinated, and maybe a lot of our folks got Omicron. So that was there. The vaccination incentive was there. Those onetime costs were there. Some other onetime costs, like our American acquisition, we had some consulting fees in there for $25,000, $30,000. So there are a few things in there that hurt us in our softest quarter. The good news is most of these are in the rearview mirror now, so we're pleased about that.

[Nick Corcoran, analyst]

Great. That helps. And then just think about the investment you're making in the workflow software. Was that all in Q4? Do you expect that to continue into this fiscal year as well?

[Jeffrey Hasham, executive]

Yes. It was about $100,000 in the fourth quarter really. So the way that this program is working for us is that was sort of the upfront item. And then now we're deploying it, and we have our teams deploying it. Now we're sort of moving more into a month-by-month cost, which is good. So we're not going to sort of see that spike zenith in [indiscernible] like any workflow software, when you install it, you've got sort of that initial setup and training and [indiscernible] and moving it to licenses, but we've now moved beyond that, which is good. And so we are still deploying it. Like we've only deployed this workflow software in 5 locations, but all the upfront work that it took, and it took a lot, and like a couple of my management teams have been that's all they've been doing is eating and sleeping this thing. But now they're migrating into the fine-tuning of those existing locations that have it and then deploying it into the other locations.

So we're actually looking really forward to that because on -- from a collections perspective, that's going to allow us to -- we have client portals, client payments online. That's going to help us reduce the amount of time spent on collections. Obviously, that's significant cost, and we think about our transaction size of $100 or $150 per client. That's a big, big deal. And of course, we went through this workflow software because we're going to be able to integrate it into our Microsoft platforms, including things like Microsoft Great Plains, Dynamics CRM. So -- and those are more plug and play. So I know you asked a very short little question, but I thought I'd give you a little extra [indiscernible].

Yes, I'll ask our operators to see if there's any last questions out there from our shareholders, supporters, capital markets.

[Operator]

There are currently no more questions from the phone line. So this concludes the question-answer session. I would like to turn the conference back over to Jeffrey Hasham for any closing remarks.

[Jeffrey Hasham, executive]

Yes. Thank you very much, everyone. Again, I want to thank my management team. I want to thank our shareholders, our Board of Directors, our franchisees, everyone gelled together to get through all the things over the last 2 years, as I mentioned in my opening statement. Those were not easy times. We've been able to get past a lot of these things. And here we are in April of 2022. And again, I think a lot of the COVID-related [indiscernible] in the rearview mirror, at least I'm hoping so. Let's certainly hope so. It seems to be the case.

The challenges that we face now, we will face them, and we will deal with them accordingly, and we'll make the right moves, and we spoke about a number of those. And some of the decisions we made in the past and investments we made in the past are paying off today in this environment. So overall, we're pleased with '21. We're working on 2022. So I'll ask my management team, and including myself, we'll put our head back down, and we'll go work on this business, and we'll go execute on our business plan, and I know many of you will have some one-on-one conversations with [indiscernible] but I want to thank you all, appreciate the support, and have a great day.

[Harjit Brar, executive]

Thank you, everyone.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.