TORONTO, Ontario, November 1, 2018 – 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, 2018. Financial references are in Canadian dollars unless otherwise specified.
2018 Third Quarter Financial Highlights
Operational Highlights
“We are building a business with a stable and sustainable stream of recurring cash flows. With the completion of the LOGiQ acquisition, we have scaled our platform to include a diverse set of recurring revenues focused on royalties from emerging growth companies and royalties from third-party asset management fees. We also benefit from non-recurring but material cash inflows from buyouts of royalties and loans, and realizations from a growing portfolio of equity and warrant positions,” said Robb McLarty, Acting Chief Executive Officer of Flow Capital. “The performance of our royalty portfolio has improved significantly in the last year. We continue to grow the portfolio, most recently through the acquisition of our joint venture partners portfolios which was an efficient and effective use of capital in a group of eight investments that we know extremely well. Our results reflect the first full quarter contribution of the royalties from third-party asset management fees – a revenue stream that continues to grow. Our prospect pipeline remains strong, and we are proactively building new dealflow channels. Our model continues to attract high-quality emerging growth companies that are seeking a superior alternative to traditional debt and equity.”
Financial Highlights
(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.
Recurring revenues from royalties and interest
Recurring royalties, interest and fee income earned were $1,219,000 and $3,419,000 for the three-month (Q3 2018) and nine-month (YTD 2018), respectively, compared to $1,193,000 and $3,574,000 for the corresponding periods in 2017. Royalties and interest for Q3 2018 was up 2% from the same period in 2017.
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.
Recurring revenues from Global Partners fee income
Global Partners fee income was $800,000 in Q3 2018. Excluding the $50,000 amortization of deferred income, this was an increase of 8%, compared to the same period in 2017.
Non-recurring revenues from buyouts, equity returns and fees
Cash of $114,000 was generated from the sale of shares held in publicly listed companies during Q3 2018.
Revenues
Revenues as reported under IFRS were $1,170,000 and $5,586,000 for Q3 2018 and YTD 2018 respectively, compared to $(1,223,000) and $(6,732,000) 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 $(650,000) compared to $2,438,000 for the same period in 2017. The non-cash amount of $(650,000) was made up of $2,272,000 for adjustments to fair value, $(2,676,000) realized loss on investments written-off that were previously written-down to zero and $(246,000) for foreign exchange differences. Included in the adjustments to fair value was: 1) $837,000 for the increase in the fair value of the shares held in Inner Spirit Holdings Inc. (“Inner Spirit”) and net of decreases in the fair value of shares held in Lattice and Boardwalktech, 2) $2,589,000 for a reversal of the fair value adjustment following the restructuring of the Medical Imaging investment during the quarter and 3) $(1,154,000) for fair value adjustments on various investments in the portfolio.
Operating Expense
Total operating expenses were $1,449,000 and $4,126,000 for Q3 2018 and YTD 2018, respectively, compared to $713,000 and $2,767,000 for the corresponding periods in 2017. The change in the quarterly period was due to $50,000 restructuring costs, $408,000 in operating costs incurred by the LOGiQ business during Q3 2018 as well as, $422,000 in amortization cost of the Global Partners intangible asset. These increases were partially offset by $123,000 lower salary costs and $20,000 lower office rent cost.
Adjusted EBITDA(1)
Adjusted EBITDA(1) was $844,000 and $1,462,000 for Q3 2018 and YTD 2018, respectively, compared to $556,000 and $4,085,000 for the corresponding periods in 2017. The change in the quarterly period was primarily due to $386,000 Adjusted EBITDA(1) earned by the LOGiQ business.
Free Cash Flow(1)
Free Cash Flow(1) was $24,000 and negative $268,000 for Q3 2018 and YTD 2018, respectively, compared to $166,000 and $3,737,000 for the corresponding periods in 2017. The $142,000 change in the quarterly period was primarily due to reducing accounts payable balance from prior periods.
Profit (Loss) After Taxes
Profit (Loss) after taxes was $(499,000) and $5,740,000 for Q3 2018 and YTD 2018, respectively, compared to $(1,763,000) and $(8,012,000) 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 was the change over the reporting periods in the realized loss from investments written-off and adjustments of fair value totaling $1,344,000.
Assets
Update on Agnity Global transaction with Universal mCloud
On June 21, 2018, Flow Capital announced that it had signed a binding agreement to sell its Royalty Agreement with Agnity Global (“Agnity”) to Universal mCloud Corp. The Binding Agreement was subject to certain conditions of closing, including receipt of the approval of the TSX Venture Exchange. The parties continue to work toward the satisfaction of all closing conditions.
Conference Call Details
Flow Capital will host a conference call to discuss these results at 5:00 p.m. Eastern Time, Thursday, November 1, 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 4895774. The replay recording will be available until 11:59 p.m. Eastern Time, November 14, 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.
For further information, please contact:
Flow Capital Corp.:
Robb McLarty
Chief Executive Officer (Acting)
Tel: (416) 777-0383
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.
