– Records Recurring Revenues from Royalties, Interest and Fees of $2.0 million and Free Cash Flow(1) of $0.7 million in Q4 2018 –

TORONTO, Ontario, February 11, 2019 – Flow Capital Corp. (TSXV: FW) (“Flow Capital”) today announced its financial and operating results for the three-month and twelve-month periods ended December 31, 2018. Financial references are in Canadian dollars unless otherwise specified.

2018 Fourth Quarter Highlights

  • Recurring revenue from royalties and interest of $1,209,000
  • Recurring revenue from Global Partners fee income of $855,000
  • Adjusted EBITDA(1) of $411,000
  • Free Cash Flow(1) of $703,000
  • Alex Baluta has been appointed Chief Executive Officer and Robb McLarty will continue in the role of Chief Investment Officer

“The refocused investment strategy in place since the end of 2016 continues to generate positive returns for shareholders” said Alex Baluta, Chief Executive Officer of Flow. “Three of the twelve new investments since 2016 have been bought-out, returning 1.74X cash-on-cash. We expect our portfolio to continue generating net positive cash flows from growing, recurring royalty and interest payments, royalty buyouts, and realizations of equity positions.”

Financial Highlights

Canadian dollars

Three months ended December 31, 2018

Three months ended December 31, 2017Year ended December 31, 2018

Year ended December 31, 2017

Revenues

$           (991,440)

$       (2,870,932)

$          4,594,086

$       (9,603,221)

Recurring revenues from royalties and interest

        1,209,263

        1,133,230

        4,597,550

  4,692,908

Recurring revenue from Global Partners fee income

        855,109

        –

        1,851,417

  –

Adjusted EBITDA(1)

                411,364

                  65,313

            1,873,021

            4,150,069

Free Cash Flow(1)

                703,434

                701,050

                676,620

            4,438,293

Profit/(Loss) for the period

          (2,458,672)

(3,339,863)

            3,030,163

       (11,351,423)

Book Value per outstanding share(2)

0.3593

0.2084

0.3593

0.2084

Basic Earnings/(Loss) per share

               (0.0282)

               (0.0288)

             0.0578

               (0.1068)

Diluted Earnings/(Loss) per share

               (0.0282)

               (0.0288)

              0.0578

               (0.1068)

Weighted diluted average number of shares outstanding

109,186,393

133,746,009

66,944,650

133,741,120

(1) Adjusted EBITDA, Free Cash Flow and Net Asset Value per outstanding share are non-IFRS measures. Refer to section Definition of Non-IFRS Measures for further explanation and definitions.
(2) Calculated by taking Total Shareholders’ Equity as reported on the Statements of Financial Position over the number of outstanding common shares.

Recurring revenues from royalties and interest

Recurring royalties and interest earned were $1,209,000 and $4,598,000 for the three-month (Q4 2018) and twelve-month (YTD 2018) periods, respectively, compared to $1,133,000 and $4,693,000 for the corresponding periods in 2017. Royalties and interest for Q4 2018 was 7% higher than the same period in 2017.

Recurring revenues from Global Partners fee income

Global Partners fee income was $855,000 in Q4 2018 including the $50,000 amortization of deferred income. There has been solid growth in the income earned from this business since being acquired in Q2 2018.

Non-recurring revenues from buyouts, equity returns and fees

Cash of $76,000 and $1,413,00 was generated during Q4 2018 from the sale of shares in Lattice, and the Frequentz royalty buyout, respectively.

Revenues

Revenues as reported under IFRS were $(991,000) and $4,594,000 for Q4 2018 and YTD 2018 respectively, compared to $(2,871,000) and $(9,603,000) 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 of $(2,525,000) compared to $(4,024,000) for the same period in 2017. The non-cash amount of $(2,525,000) was made up of $6,653,000 for adjustments to fair value, $(9,827,000) realized loss on investments written-off that were previously written-down to zero, and $650,000 for foreign exchange gains. Included in the adjustments to fair value were: 1) $(1,459,000) for the decrease in the market value of shares held in investee companies, 2) $9,944,000 for a reversal of the fair value adjustment of three legacy investments written-off where Flow Capital is now pursing legal measures in order to recover shareholder value and 3) $(2,040,000) for the write-down charge on the Solar Brokers investment.

Revenues in the annual period were negatively impacted by net non-cash items of $3,126,000 compared to $17,390,000 in 2017. This non-cash amount relates to $14,017,000 adjustments to fair value, $(17,932,000) for investments written-off and $788,000 for unrealized foreign exchange gain.

Operating Expense

Total operating expenses were $1,634,000 and $5,760,000 for Q4 2018 and YTD 2018, respectively, compared to $1,196,000 and $3,963,000 for the corresponding periods in 2017. The change in the quarterly period was due to $567,000 in operating costs incurred by the LOGiQ business during Q4 2018, as well as $409,000 in amortization cost of the Global Partners intangible asset. These increases were partially offset by $106,000 in lower salary costs and $394,000 in lower withholding tax expense.

The increase in operating expenses in the annual period is due to $706,000 restructuring costs and $1,114,000 in operating costs incurred by the LOGiQ business since the acquisition in Q2 2018.

Adjusted EBITDA(1)

Adjusted EBITDA(1) was $411,000 and $1,873,000 for Q4 2018 and YTD 2018, respectively, compared to $65,000 and $4,150,000 for the corresponding periods in 2017. The increase in the quarterly period was due to $192,000 Adjusted EBITDA(1) generated by the LOGiQ business and the $283,000 realized gain on the Frequentz royalty buyout. The change in the annual period was due to the $3,000,000 realized gain earned in 2017 on the buyout of the Aquam investment that was partially offset by the $474,000 Adjusted EBITDA(1) earned by the LOGiQ business since its acquisition in June 2018.

Free Cash Flow(1)

Free Cash Flow(1) was $703,000 and $677,000 for Q4 2018 and YTD 2018, respectively, compared to $701,000 and $4,438,000 for the corresponding periods in 2017. The change in the annual period was primarily due to the buyout of the Aquam investment in 2017 that generated $3,533,000 in Free Cash Flow(1).

Profit (Loss) After Taxes

Profit (Loss) after taxes was $(2,459,000) and $3,030,000 for Q4 2018 and YTD 2018, respectively, compared to $(3,340,000) and $(11,351,000) for the corresponding periods in 2017. The improvement in the quarterly and annual period was primarily due to a combination of non-cash items, the most significant of which was the bargain purchase gain of $5,459,000 recorded in Q2 2018 and the change over the reporting periods in the realized loss from investments written-off and adjustments of fair value totaling $944,000 and $12,588,000 respectively.

Assets

 

 As at December 31, 2018

 As at December 31, 2017

Cash and cash equivalents

$8,607,686

$7,534,383

Investments at fair value

24,075,839

22,289,157

Intangible asset

12,115,869

Total assets

56,665,349

39,392,563

As of today, Flow Capital has $8.3 million held in cash and cash equivalents.  

Conference Call Details

Flow Capital will host a conference call to discuss these results at 8:00 a.m. Eastern Time, Tuesday, February 12, 2019. 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 5283308. The replay recording will be available until 11:59 p.m. Eastern Time, February 19, 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.:

Alex Baluta

Chief Executive Officer

Tel: (416) 777-0383