— Records Recurring Revenues from Royalties and Interest of $1.3 million and Free Cash Flow(1) of $1.5 million in Q3 2019 —
TORONTO, Ontario, November 14, 2019 – Flow Capital Corp. (TSXV: FW) (“Flow Capital”) today announced its financial and operating results for the three-month and nine-month periods ended September 30, 2019. Financial references are in Canadian dollars unless otherwise specified.
2019 Third Quarter Highlights
- Closed the raising of $10 million capital through Flow’s Priority Return Fund LP
- Factor 75 investment bought-out and mCloud note repaid with $4,619,000 of capital returned
- Recurring revenue from royalties and interest of $1,340,000
- Adjusted EBITDA(1) of $1,717,000
- Free Cash Flow(1) of $1,477,000
- Completed on October 17, 2019, a substantial issuer bid cancelling 5,708,000 common shares at a cost of $1,142,000
- Announced the redemption of $14,000,000 Series A debentures effective November 15, 2019
“The performance in the quarter was encouraging with Free Cash Flow(1) and Adjusted EBITDA(1) performing strongly,” said Alex Baluta, Chief Executive Officer of Flow Capital. “The benefits of our structure, particularly the buyout premium, was evidenced in our strong cash flow this quarter. In addition, for the growth company entrepreneur, the flexibility of our revenue-based financing offers the compelling value proposition of repayment on their timeline.”
Recurring revenues from royalties and interest
Recurring royalties and interest earned were $1,340,000 and $4,343,000 for the three-month (Q3 2019) and nine-month (YTD 2019) period ended September 30, 2019, respectively, compared to $1,214,000 and $3,388,000 for the corresponding periods in 2018. Recurring royalties and interest earned for Q3 2019 and YTD 2019 are up 10% and 28%, respectively, from the same period in 2018, due to royalties earned on new investments closed in the last twelve months and higher royalties due to growth from the existing investments.
Non-recurring revenues from buyouts and equity returns
In Q3 2019, there was one buyout that earned $993,000 of a realized gain compared to two buyouts that earned realized gains of $525,000 in the corresponding period in 2018. Cash of $24,000 and $385,000 was generated during Q3 2019 and YTD 2019, respectively, from the sale of shares of equity investments held in our portfolio compared to $114,000 for the corresponding periods in 2018.
Revenues as reported under IFRS were $473,000 and $2,017,000 for Q3 2019 and YTD 2019, respectively, compared to $420,000 and $4,652,000 for the corresponding periods in 2018. 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 $(2,426,000) compared to $(650,000) for the same period in 2018. The non-cash amount of $(2,426,000) was made up of $(2,412,000) for adjustments to fair value, $(194,000) realized loss on investments written-off that were previously written-down to zero and $180,000 for foreign exchange differences. Included in the adjustments to fair value was $182,000 for relating to equity instruments held and $(2,594,000) for fair value adjustments on various investments in the portfolio.
Total operating expenses, excluding discontinued operations, were $890,000 and $2,881,000 for Q3 2019 and YTD 2019, respectively, compared to $742,000 and $3,261,000 for the corresponding periods in 2018. Operating expenses for Q3 2019 were $148,000 higher than the 2018 corresponding period due to higher staffing costs and professional fees of $90,000 and $93,000, respectively, offset by $50,000 lower restructuring costs. Operating expenses for YTD 2019 were $380,000 lower than for the same period in 2018 due to $706,000 of restructuring costs incurred in 2018, offset by an increase of $252,000 and $162,000 in professional fees and staffing costs for YTD 2019.
Adjusted EBITDA(1) was $1,717,000 and $4,323,000 for Q3 2019 and YTD 2019, respectively, compared to $844,000 and $1,462,000 for the corresponding periods in 2018. The increase in Adjusted EBITDA(1) for Q3 2019 compared to the corresponding period in 2018 was due to the $993,000 gain on the Factor75 buyout. The increase in Adjusted EBITDA(1) for YTD 2019 compared to the corresponding period in 2018 was due to the previously referenced $993,225 gain on the Factor75 buyout, $954,727 higher royalty and loan payment income and $706,250 in lower restructuring costs.
Free Cash Flow(1)
Free Cash Flow(1) was $1,477,000 and $2,138,000 for Q3 2019 and YTD 2019, respectively, compared to $24,000 and $(268,000) for the corresponding periods in 2018. Free Cash Flow(1) for Q3 2019 was higher due to the $993,000 gain on the Factor75 buyout. For YTD 2019, Free Cash Flow(1) was higher compared to the corresponding period in 2018 due to the realized gain of $993,000 on the Factor75 buyout and $932,000 of Free Cash Flow(1) generated from the LOGiQ Global Partners business during YTD 2019.
Profit (Loss) After Taxes
Profit (loss) after taxes was $(883,000) and $(1,670,000) for Q3 2019 and YTD 2019, respectively, compared to $(499,000) and $5,489,000 for the corresponding periods in 2018. The decrease of $384,000 and $7,159,000 in profit (loss) after taxes for Q3 2019 and YTD 2019, respectively, was due to a combination of non-cash items, the most significant being the bargain purchase gain of $5,459,147 recognized in the corresponding periods in 2018.
Conference Call Details
Flow Capital will host a conference call to discuss these results at 8:00 a.m. Eastern Time, Friday, November 15, 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 1777556. The replay recording will be available until 11:59 p.m. Eastern Time, November 22, 2019.
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
Flow Capital Corp. is a diversified alternative asset investor and advisor, specializing in providing minimally dilutive capital to emerging growth businesses. To apply for financing, visit 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
Tel: (416) 777-0383