Grenville Strategic Royalty Announces 2018 First Quarter Results
– Records Royalty Payment and Interest Income of $1.0 million in Q1 2018 –
TORONTO, Ontario, May 3, 2018 – Grenville Strategic Royalty Corp. (TSXV: GRC) (“Grenville” or the “Company”) today announced its financial and operating results for the three-month period ended March 31, 2018. Financial references are in Canadian dollars unless otherwise specified.
2018 First Quarter Financial Highlights
- Royalty Payment and Interest Income of $1,039,000
- Realized gain on Contract Buyout of $125,000
- Revenue of $1,844,000
- Adjusted EBITDA(1) of $115,000
- Free Cash Flow(1) of $(133,000)
Operational Highlights
Announced Robb McLarty as the new Chief Investment Officer and Acting Chief Executive of Grenville and the resignation of Steve Parry from the Board of Directors
Entered into an arrangement agreement with LOGiQ Asset Management Inc. (“LOGiQ”) for a reverse takeover of LOGiQ. Pending the requisite shareholder approvals, court approvals and closing conditions, Grenville shareholders would hold approximately 67% of the combined company and LOGiQ shareholders 33%
Closed three new investments since January 1, 2018, consisting of $950,000 in Solar Brokers Canada Corp. (“Solar Brokers”), $800,000 in Dionymed Holdings Inc.(“DionyMed”), and US$875,000 in Stability Healthcare Inc. (“Stability”)
Received a Contract Buyout of $250,000, plus royalties earned, on the $125,000 investment in Fixt, bringing the total return to $277,000 for a cash-on-cash return of 2.21 within ten months
Converted a $1 million royalty agreement in WatchIt! to 10 million shares in Inner Spirit at a price of $0.10 per share
Received 80,000 warrants in DionyMed and granted the right to earn up to 399,424 common share purchase warrants in Boardwalktech in relation to consulting services, both of which were subsequent to the end of the period“The transaction with LOGiQ provides us with immediate financial scale that allows us to leverage our existing deal sourcing platform to continue the growth of our portfolio” said Robb McLarty, Acting Chief Executive Officer of Grenville. “The three investments made since the beginning of the year reflect what we seek when sourcing investments. Each company has a strong customer value proposition, is capital efficient, and is led by a proven management team with a significant ownership stake. They are companies of scale and growth, cumulatively representing more than $69 million in run-rate revenue. Looking forward, we will continue to source and close investments in companies like Solar Brokers, DionyMed and Stability.”
Financial Highlights
| Canadian dollars | Three months ended March 31, 2018 | Three months ended March 31, 2017 |
| Revenues | $ 1,844,420 | $ (3,442,258) |
| Royalty Payment Income Interest and Fee Income Earned | 1,038,506 | 1,333,641 |
| Adjusted EBITDA(1) | 115,796 | 157,101 |
| Free Cash Flow(1) | (132,874) | 52,232 |
| (Loss)/Profit for the period | 195,934 | (3,792,281) |
| EBITDA/EBITDA (Loss)(1) | 664,615 | (4,638,865) |
| Basic Earnings/(Loss) per share | 0.0012 | (0.0357) |
| Diluted Earnings/(Loss) per share | 0.0012 | (0.0357) |
| Weighted basic average number of shares outstanding |
106,317,656
| 106,297,830 |
| Royalty agreements acquired and promissory notes receivable in period | 950,000 | 98,130 |
- 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
Revenues were $1,844,000 for the three-month period (Q1 2018) ended March 31, 2018, compared to $(3,442,000) for the corresponding period in 2017. Like previous reporting periods, certain non-cash items are recognized in revenue in accordance with IFRS 9.
Revenues were positively impacted by the $125,000 realized gain from the buyout of the Fixt investment. Revenues were also positively impacted by net non-cash items of $639,000 in Q1 2018 compared to a negative impact of $4,793,000 for the corresponding period in 2017. The non-cash amount relates to $410,000 of an unrealized gain in writing-up the fair value of royalty agreements acquired and promissory notes receivable and $94,000 of an unrealized foreign exchange gain. These improvements were partially offset by $182,000 for the unrealized loss in the change in the fair value of the shares held in Lattice Biologics Ltd.
Royalty Payment Income and Interest and Fee Income Earned
Royalty payment income plus interest and fee income earned were $1,039,000 for Q1 2018, compared to $1,334,000 for the corresponding period in 2017. The change was primarily due to $269,000 of income recognized on the Aquam investment during the three-month period ended March 31, 2017 that was bought-out in April 2017.
Management believes that the portfolio will continue to contribute Free Cash Flow(1) on a regular basis as it matures.
Operating Expense
Total operating expenses were $1,205,000 in Q1 2018, compared to $1,251,000 for the corresponding period in 2017. The improvement was due to lower salary costs of approximately $72,500 due to two fewer employees, lower rent of $18,500 as a result of moving offices, lower staff training costs of $17,000 and an expense incurred in Q1 2017 of $400,000 related to overclaimed HST input credits. These improvements were partially offset by a $312,500 restructuring cost for the termination of the employment agreement for a managing director of the Company and $136,500 of professional fees incurred for the transaction to combine with LOGiQ.
Adjusted EBITDA(1)
Adjusted EBITDA(1) was $116,000 for Q1 2018, compared to $157,000 for the corresponding period in 2017. The variance was due to a number of factors but the insignificant change demonstrates the sustainability of the company’s performance even though royalty payment income, the core revenue item fell by $295,000.
Free Cash Flow(1)
Free Cash Flow(1) was $(133,000) for Q1 2018, compared to $52,000 for the corresponding period in 2017. The change was due to $103,000 year-end related audit and professional fees paid and the expenses paid for professional fees relating to the transaction to combine with LOGiQ.
Profit (Loss) After Taxes
Profit after taxes was $196,000 for Q1 2018, compared to $(3,792,000) for the corresponding periods in 2017. The improvement was primarily due to $4,154,000 improvement in non-cash items (unrealized foreign exchange gains and losses, unrealized gains and losses from the changes in the fair value of royalty and equity investments and realized loss from investments written-off) between the periods.
Outlook
The Company has invested approximately $72 million of capital in 43 portfolio companies, generated Adjusted EBITDA(1) of $20.3 million since inception and generated free cash flow(1) of $12.3 million since July 2014. The core of the portfolio has reached a scale at which it is generating positive Adjusted EBITDA(1) and Free Cash Flow(1). The Company has over time developed and expanded the royalty model to include equity investments as part of its offering. The Company will in select cases where management believes the balance of risk and return warrant it, blend royalties with an equity kicker where management believe it may lead to better returns for the Company and ultimately our shareholders.
Grenville’s royalty agreements with its portfolio companies generated Adjusted EBITDA(1) to the Company of approximately $0.1 million for Q1 2017. As of May 3, 2018, the Company estimates that the royalty payment income and interest earned for April 2018 will be $0.37 million. Operating expenses (excluding share-based compensation, restructuring cost, transactions costs for the LOGiQ transaction and depreciation) for Q1 2018 were approximately $0.225 million per month. Operating expenses, excluding a restructuring cost in relation to Steve Parry’s move to an advisory role, are estimated to be in the range of $0.2 million to $0.25 million per month for the three months ending June 30, 2018. The Company’s cash position at May 3, 2018 is approximately $5.1 million.
Grenville’s financial statements and management’s discussion and analysis for the three-month period ended March 31, 2018, will be filed today on SEDAR at www.sedar.com and also available on Grenville’s website at www.flowcap.com.
(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
Grenville will host a conference call to discuss these results at 8:00 a.m. Eastern Time, Friday, May 4, 2018. Participants should call (647) 427-2311 or (866) 521-4909 and ask an operator for the Grenville 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 7288573. The replay recording will be available until 11:59 p.m. Eastern Time, May 17, 2018.
