– Records Recurring Revenues from Royalties and Interest of $1.2 million and Free Cash Flow(1) of $0.8 million in Q4 2019 –
TORONTO, February 13, 2020 – 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, 2019. Financial references are in Canadian dollars unless otherwise specified.
2019 Fourth Quarter Highlights
- Closed a $1,250,000 investment in Wedge Networks Inc.
- Recurring revenue from royalties and interest of $1,234,000
- Adjusted EBITDA(1) of $470,000
- Free Cash Flow(1) of $823,000
- Series A debentures of $16,958,000 fully redeemed
- Announced on December 16, 2019, a normal course issuer bid for one year to repurchase, for cancellation, up to 6,000,000 common shares representing approximately 7.72% of the outstanding common shares
“We are pleased to note that during the quarter, Flow redeemed its outstanding Series A debenture in full. With a current cash balance of over $10,300,000, the Company is entering 2020 in a strong financial position,” said Alex Baluta, Chief Executive Officer of Flow Capital. “We are looking forward to a strong year of capital deployment into new and larger investments in 2020. We expect our average deal size will increase throughout 2020. Our minimally dilutive investment structures, including royalty-based financing and venture debt, continue to resonate well with the entrepreneur looking for minimally dilutive growth capital.”
Recurring revenues from royalties and interest
Recurring royalties and interest earned were $1,234,000 and $5,577,000 for the three-month (Q4 2019) and twelve-month (YTD 2019) period ended December 31, 2019, respectively, compared to $1,209,000 and $4,598,000 for the corresponding periods in 2018. Recurring royalties and interest earned for Q4 2019 and YTD 2019 are up 2% and 21%, 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 YTD 2019, there was a realized gain of $993,000 from the Factor75 buyout. For the corresponding period in 2018, there were three buyouts that earned realized gains of $808,000. Cash of $266,000 and $652,000 was generated during Q4 2019 and YTD 2019, respectively, from the sale of shares of equity investments held in our portfolio compared to $76,000 and $191,000 for the corresponding periods in 2018.
Revenues as reported under IFRS were $2,010,000 and $4,026,000 for Q4 2019 and YTD 2019, respectively, compared to $(1,797,000) and $2,856,000 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 $586,000 compared to $(2,525,000) for the same period in 2018. The non-cash amount of $586,000 was made up of $1,953,000 for adjustments to fair value, $(1,211,000) for an investment written-off and $(156,000) for foreign exchange loss. Included in the adjustments to fair value was $(782,000) relating to equity instruments held, $1,211,000 fair value adjustment reversal due to the investment written-off and $1,524,224 for fair value adjustments on various investments in the portfolio.
Total operating expenses, excluding discontinued operations, were $1,226,000 and $4,107,000 for Q4 2019 and YTD 2019, respectively, compared to $753,000 and $4,015,000 for the corresponding periods in 2018. Operating expenses for Q4 2019 were $473,000 higher than the 2018 corresponding period due to higher restructuring costs, staffing costs and professional fees of $294,000, $119,000 and $86,000, respectively. Operating expenses for YTD 2019 were $92,000 higher than for the same period in 2018 due to an increase of $232,000, $304,000 and $65,000 in professional fees, salary costs and staffing costs for YTD 2019, offset by higher restructuring costs of $413,000 and withholding tax expense of $96,000 incurred in 2018.
Adjusted EBITDA(1) was $470,000 and $4,183,000 for Q4 2019 and YTD 2019, respectively, compared to $411,000 and $1,873,000 for the corresponding periods in 2018. The increase in Adjusted EBITDA(1) for YTD 2019 compared to the corresponding period in 2018 was due to the $993,000 gain on the Factor75 buyout, $979,000 higher royalty and loan payment income and $313,000 realized gain on the sale of shares during YTD 2019.
Free Cash Flow(1)
Free Cash Flow(1) was $823,000 and $2,975,000 for Q4 2019 and YTD 2019, respectively, compared to $703,000 and $677,000 for the corresponding periods in 2018. For YTD 2019, Free Cash Flow(1) was higher compared to the corresponding period in 2018 due to previously referenced realized gain of $993,000 on the Factor75 buyout and $979,000 higher royalty and loan payment income during YTD 2019.
Profit (Loss) After Taxes
Profit (loss) after taxes from continuing operations was $(10,189,000) and $(12,223,000) for Q4 2019 and YTD 2019, respectively, compared to $(2,383,000) and $3,037,000 for the corresponding periods in 2018. The increase in the loss after taxes of $7,806,000 for Q4 2019 was due to the non-cash charge for the deferred tax expense of $9,443,000 resulting from the derecognition in Q4 2019 of the deferred asset tax because of recent tax losses, offset by an increase in non-cash items of $3,039,000 that were reported in revenues. The movement of $15,260,000 in profit (loss) after taxes for YTD 2019 was due to the previously referenced deferred tax expense of $9,443,000 and a combination of non-cash items, the most significant being the bargain purchase gain of $5,459,147 recognized in the corresponding period in 2018.
Conference Call Details
Flow Capital will host a conference call to discuss these results at 8:00 a.m. Eastern Time, Friday, February 14, 2020. 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 2047657. The replay recording will be available until 11:59 p.m. Eastern Time, February 21, 2020.
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.
For further information, please contact:
Flow Capital Corp.
Chief Executive Officer
Tel: (416) 777-0383
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.