– Records Recurring Revenues from Royalties, Interest and Fees of $1.3 million in Q2 2018 –
TORONTO, Ontario, August 23, 2018 – Flow Capital Corp. (TSXV: FW) (“Flow Capital”) today announced its financial and operating results for the three-month and six-month periods ended June 30, 2018. The Company’s results include the results of LOGiQ Asset Management Inc. (“LOGiQ”) for the period of June 7, 2018 to June 30, 2018, and no comparative figures for LOGiQ are included in the 2017 results. Financial references are in Canadian dollars unless otherwise specified.
2018 Second Quarter Financial Highlights
- Revenue of $2,565,000
- Recurring revenue from royalties, interest and fees of $1,342,000
- Adjusted EBITDA(1) of $495,000
- Free Cash Flow(1) of $(159,000)
- Completed the reverse takeover of LOGiQ and amalgamated to form Flow Capital Corp.
- Closed two new investments, consisting of $800,000 in Dionymed Holdings Inc. and US$875,000 in Stability Healthcare Inc. and, subsequent to the end of the period, expanded its relationship with Solar Brokers Canada Corp. with a $1,000,000 secured line of credit and an ownership position
- Agreed to the sale of the Agnity Global royalty agreement to Universal mCloud Corp. for US$2,000,000 and 1,500,000 mCloud common shares at close, and another 3,500,000 mCloud common shares if certain milestones are met
- Exited the Company’s debt agreement with Boardwalktech Software Corp. (“Boardwalktech”), receiving US$600,000 representing a 2.2x return in the six-month holding period and earned a warrant of 399,424 common shares of Boardwalktech valued at $1,366,000
- Two investee companies completed successful public listings, Boardwalktech on the TSX Venture Exchange and, subsequent to the end of the period, Inner Spirit Holdings Ltd. (“Inner Spirit”) on the Canadian Securities Exchange
“Flow Capital creates shareholder value in four distinct ways: 1) stable, recurring revenues from a diverse portfolio of royalties in North American emerging growth companies; 2) buyouts or buydowns of royalty or loan contracts; 3) accumulation of equity or warrants from advisory services or royalty conversions; and 4) stable, recurring revenues from a diverse portfolio of royalties in third-party asset management fees. Our quarterly results demonstrate execution and value creation across each of these dimensions,” said Robb McLarty, Acting Chief Executive Officer of Flow Capital. “These results reflect the disciplined execution of our plan – to identify and invest in emerging growth companies that are seeking flexible capital and value-added advice in order to fulfill their growth objectives. LOGiQ Global Partners has added stability and scale to Flow Capital’s overall financial position, which reinforces our ability to grow shareholder value through profitable investments.”
|Canadian dollars||Three months ended June 30, 2018||Three months ended June 30, 2017|
|Recurring revenues from royalties, interest and fees|
|Non-recurring revenues from buyouts, equity returns and consulting fees|
|Free Cash Flow(1)|
|Profit/(Loss) for the period|
|Basic Earnings/(Loss) per share|
|Diluted Earnings/(Loss) per share|
|Weighted basic average number of shares outstanding|
|Weighted diluted average number of shares outstanding|
(1) EBITDA, Adjusted EBITDA and Free Cash Flow are non-IFRS measures. Refer to section Definition of Non-IFRS Measures for further explanation and definitions.
Revenues were $2,565,000 and $4,415,000 for the three-month (Q2 2018) and six-month (YTD 2018) periods ended June 30, 2018, respectively, compared to $(2,067,000) and $(5,510,000) for the corresponding periods in 2017. With the adoption of IFRS 9, certain non-cash items are recognized in revenue.
Revenues in the quarterly period were impacted by IFRS 9 net non-cash items $(591,000) compared to $(7,058,000) for corresponding period last year. The non-cash amount consisted primarily of an improvement of $4,865,000 for adjustments to fair value which were primarily due to reversing the adjustment of $5,429,000 in realized loss on investments written-off and a $(27,000) impact for foreign exchange differences. Also included in the adjustments to fair value were an increase of $965,000 in the fair value of the shares held in Lattice Biologics Ltd. and Boardwalktech offset by $1,117,000 reduction in the fair value on a promissory note.
Revenues in the quarterly period also include a $400,000 buyout from Boardwalktech compared to $3,000,000 in royalty buyout revenues from Aquam Corp. in April 2017, reported in the prior year period.
Royalties, Interest and Fees
Royalties, interest and fees were $1,342,000 and $2,396,000 for Q2 2018 and YTD 2018, respectively, compared to $1,046,000 and $2,380,000 for the corresponding periods in 2017. The change in the quarterly period was due to royalty payment income of $370,000 earned during the period from new investments in the last twelve months and $196,000 in Global Partner management fees for the period of June 7, 2018 to June 30, 2018. These changes were partially offset by a decrease of $47,000 in royalty payment income earned in the prior year period that was not earned in the current period due to royalty buyouts, a decrease of $121,000 from one investment not accruing income and a decrease of $106,000 relating to the lower U.S. dollar exchange rate and a lower royalty rate on some investments.
Management believes that the core companies from its portfolio will continue to contribute Free Cash Flow(1) on a regular basis as the portfolio matures.
Total operating expenses were $1,472,000 and $2,676,000 for Q2 2018 and YTD 2018, respectively, compared to $803,000 and $2,054,000 for the corresponding periods in 2017. The change in the quarterly period was due to $344,000 in restructuring costs, $236,000 in costs incurred by the acquired LOGiQ business from June 7 to June 30, 2018, $174,000 of transaction costs for the reverse acquisition and $96,000 for withholding tax expensed. These increases were partially offset by $136,000 in lower salary costs and $17,000 in lower office rent.
Adjusted EBITDA(1) was $495,000 and $617,000 for Q2 2018 and YTD 2018, respectively, compared to $3,372,000 and $3,529,000 for the corresponding periods in 2017. The change was primarily due to the Aquam contract buyout for $3,000,000 in April 2017 referenced above.
Free Cash Flow(1)
Free Cash Flow(1) was $(159,000) and $(292,000) for Q2 2018 and YTD 2018, respectively, compared to $3,518,000 and $3,570,000 for the corresponding periods in 2017. The change in the quarterly period was primarily due to the Aquam contract buyout for $3,000,000 in April 2017, as well as the $174,000 in acquisition transaction costs, each of which are referenced above.
Profit (Loss) After Taxes
Profit after taxes was $5,853,000 and $5,989,000 for Q2 2018 and YTD 2018, respectively, compared to $(2,456,000) and $(6,248,000) for the corresponding periods in 2017. The improvement in the quarterly period was primarily due to a combination of non-cash items the most significant of which are the purchase gain of $5,459,000 and the realized loss from investments written-off and adjustments to fair value totalling $6,529,000.
|As at June 30, 2018||As at December 31, 2017|
|Cash and cash equivalents|
|Investments at fair value|
Cancellation of Options
An aggregate of 200,000 stock options of the Company held by a director of the Company, exercisable at a price of $0.18 per share until June 13, 2023, have been cancelled at the request of the director.
Flow Capital’s financial statements and management’s discussion and analysis for the three-month period ended June 30, 2018, will be filed today on SEDAR at www.sedar.com and also available on Flow Capital’s website at www.flowcap.com/financials.
(1) Please refer to the Company’s management’s discussion and analysis for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS.
Conference Call Details
Flow Capital will host a conference call to discuss these results at 8:00 a.m. Eastern Time, Friday, August 24, 2018. Participants should call (647) 427-2311 or (866) 521-4909 and ask an operator for the Flow Capital earnings call. Please dial in 10 minutes prior to the call to secure a line. A replay will be available shortly after the call. To access the replay, please dial (416) 621-4642 or (800) 585-8367 and enter access code 7688437. The replay recording will be available until 11:59 p.m. Eastern Time, August 31, 2018.
An audio recording of the conference call will be also available on the investors’ page of Flow Capital’s website at www.flowcap.com/financials.
About Flow Capital
Based in Toronto, Flow Capital Corp. is a diversified alternative asset investor and advisor, operating two divisions: an investment operation providing revenue-linked capital to emerging growth businesses, and an institutional advisory sales platform providing pension funds, charities and endowment clients with access to leading institutional money managers from around the world. Learn more at www.flowcap.com.
Forward-Looking Information and Statements
This press release contains certain “forward-looking information” within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or may contain statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “will continue”, “will occur” or “will be achieved”. The forward-looking information contained herein may include, but is not limited to, information with respect to: prospective financial performance; including the Company’s opinion regarding the current and future performance of its portfolio, expenses and operations; anticipated cash needs and need for additional financing; anticipated funding sources; future growth plans; royalty acquisition targets and proposed or completed royalty transactions; estimated operating costs; estimated market drivers and demand; business prospects and strategy; anticipated trends and challenges in the Company’s business and the markets in which it operates; the amount and timing of the payment of dividends by the Company; and the Company’s financial position. By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements.
An investment in securities of the Company is speculative and subject to a number of risks including, without limitation, risks relating to: the need for additional financing; the relative speculative and illiquid nature of an investment in the Company; the volatility of the Company’s share price; the Company’s limited operating history; the Company’s ability to generate sufficient revenues; the Company’s ability to manage future growth; the limited diversification in the Company’s existing investments; the Company’s ability to negotiate additional royalty purchases from new investee companies; the Company’s dependence on the operations, assets and financial health of its investee companies; the Company’s limited ability to exercise control or direction over investee companies; potential defaults by investee companies and the unsecured nature of the Company’s investments; the Company’s ability to enforce on any default by an investee company; competition with other investment entities; tax matters, including the potential impact of the Foreign Account Tax Compliance Act on the Company; the potential impact of the Company being classified as a Passive Foreign Investment Company (“PFIC”); the Company’s ability to pay dividends in the future and the timing and amount of those dividends; reliance on key personnel, particularly the Company’s founders; dilution of shareholders’ interest through future financings; and general economic and political conditions; as well as the risks discussed in the joint management information circular of the Company dated May 2, 2018 and the risks discussed herein. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.
In connection with the forward-looking information and forward-looking statements contained in this press release, the Company has made certain assumptions. Assumptions about the performance of the Canadian and U.S. economies over the next 24 months and how that will affect the Company’s business and its ability to identify and close new opportunities with new investees are material factors that the Company considered when setting its strategic priorities and objectives, and its outlook for its business.
Key assumptions include, but are not limited to: assumptions that the Canadian and U.S. economies relevant to the Company’s investment focus will remain relatively stable over the next 12 to 24 months; that interest rates will not increase dramatically over the next 12 to 24 months; that the Company’s existing investees will continue to make royalty payments to the Company as and when required; that the businesses of the Company’s investees will not experience material negative results; that the Company will continue to grow its portfolio in a manner similar to what has already been established; that tax rates and tax laws will not change significantly in Canada and the U.S.; that more small to medium private and public companies will continue to require access to alternative sources of capital; that the Company will have the ability to raise required equity and/or debt financing on acceptable terms; and that the Company will have sufficient free cash flow to pay dividends. The Company has also assumed that access to the capital markets will remain relatively stable, that the capital markets will perform with normal levels of volatility and that the Canadian dollar will not have a high amount of volatility relative to the U.S. dollar. In determining expectations for economic growth, the Company primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies. Although the Company believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements.
The forward-looking information and forward-looking statements contained in this PRESS RELEASE are made as of the date of this PRESS RELEASE, and the Company does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward- looking information and statements attributable to the Company or persons acting on its behalf is expressly qualified in its entirety by this notice.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
For further information, please contact:
Flow Capital Corp.:
Chief Executive Officer (Acting)
Tel: (416) 777-0383