TORONTO, ONTARIO–(Marketwired – Nov. 17, 2015) – Grenville Strategic Royalty Corp. (TSX VENTURE:GRC) (“Grenville” or the “Company”) today announced its financial and operating results for the three-month period ended September 30, 2015 (Q3 2015). Financial references are in Canadian dollars unless otherwise specified.
2015 Third Quarter Financial Highlights
(Comparisons made between fiscal Q3 2015 and fiscal Q3 2014 results, unless otherwise noted)
· Revenues of $4,537,725, an increase of 401% over Q3 2014
· Realized gains on contract buyouts were $2,196,642
· Adjusted EBITDA(1) of $4,326,034, an increase of 699% over Q3 2014
· Free Cash Flow(1) of $2,654,803
· Income after taxes was $3,899,245, an increase of 638%
· Declared a November dividend of $0.00583 per share, or $0.07 on an annualized basis, subsequent to the end of the period, representing a 40% increase over the previous monthly dividend
To view the bar graph accompanying this press release, please visit the following link: http://media3.marketwire.com/docs/1033251_charts.pdf
2015 Third Quarter Portfolio Highlights
· Average royalty payment per million invested(1) was $250,583 for the month of September 2015, or $242,198 net of an adjustment for two royalty payments as a result of the INOVx contract buyout
· Including contract buyouts, average royalty payment per million invested(1) of $369,419 and $306,018 for the month of September and the twelve month period ended September 30, 2015, respectively
· Royalty agreements, follow-on financings and new loans acquired were $4,970,940 million for Q3 2015, bringing the aggregate net value of acquired royalties and loans since inception to the end of Q3 2015 to $42,762,458
· Successful closing of four contract buyouts since the start of Q3, consisting of Wmode and DS Handling and, subsequent to the end of the period, Above Security and INOVx, totaling $12.1m
“The decision to increase the dividend reflects both the consistent performance of our royalty portfolio and its scale. In making this dividend increase, we have retained cash flows and reserves to be able to comfortably manage the business and be consistent with prior communications on our growth plus yield business model. Revenue, adjusted EBITDA and free cash flow continue to grow with our seventh consecutive record quarter. The Q3 results do not include the $2,737,235 of realized gains from the contract buyouts for Above Security and INOVx which will be reported with the Q4 results.” said William (Bill) R. Tharp, President and Chief Executive Officer of Grenville. “Our four successful contract buyouts provide additional capital to redeploy into new opportunities. The breadth of these new opportunities allows us to further diversify and strengthen the portfolio and continue to provide stable and sustainable returns to shareholders.”
Financial Highlights
Revenues
Revenues were $4,537,725 and $8,446,957 for Q3 2015 and the nine-month period ended September 30, 2015 (YTD 2015), respectively, compared with $905,384 and $1,409,546 for the corresponding periods in 2014. The increase was driven by two factors: growth in the aggregate investment over the previous year; and realized gains on contract buyouts. Royalty payment income increased to $2,298,409 and $5,879,539 for Q3 2015 and YTD 2015, respectively, from $842,595 and $1,283,470 for the corresponding periods in 2014. Realized gains on contract buyouts was $2,196,642 for Q3 2015 and YTD 2015, which related to Wmode and DS Handling, compared to nil last year.
Management believes contract buyouts will contribute to revenue on a regular basis as the portfolio matures, but will fluctuate more than regular monthly portfolio cash flows received from the portfolio. As of November 16, 2015, the Company has generated $12.1 million in contract buyouts since its inception.
Operating Expense
Total operating expenses were $(797,379) and $(630,220) for Q3 2015 and YTD 2015, respectively, compared with $31,686 and $4,441,703 for the corresponding periods in 2014. The change was primarily driven by net foreign exchange gains in the 2015 periods and $3,636,197 of expenses directly attributable to the RTO in the YTD 2014 period. The Company recorded net foreign exchange gains of $1,510,814 and $2,552,248 in Q3 2015 and YTD 2015, respectively, almost entirely comprised of unrealized foreign exchange gains on the translation of royalty agreements acquired in US dollars.
Income (loss) After Taxes
Income (loss) after taxes was $3,899,245 and $5,272,510 for Q3 2015 and YTD 2015, respectively, compared to $528,558 and $(3,377,297), for corresponding periods last year. The improvements were due to higher revenues in each of the 2015 periods, as the Company scaled its portfolio, as well as the foreign exchange gains and the RTO expense in 2014. It also includes $409,064 recovered, net of collection costs, related to the $1,000,000 impairment recorded in Q4 2014 related to the APO Group investment.
Adjusted EBITDA(1)
Adjusted EBITDA(1) was $4,326,034 and $5,904,581 for Q3 2015 and YTD 2015, respectively, compared to $541,579 and $551,810 for corresponding periods last year. The increases were due to increased revenues of $3,632,341 and $7,037,411 respectively as a result of $22,641,690 in new royalty agreements acquired since the end of September 2014 and the realized gains on two contract buyouts of $2,196,642.
Free Cash Flow(1)
Free cash flow(1) was $2,654,803 and $3,597,072 for Q3 2015 and YTD 2015, respectively, compared to $(388,668) and $(292,587) for the corresponding periods last year. The increases were due to the increase in revenues, in particular the realized gains on contract buyouts of $2,196,642.
Dividend
Grenville today declared a November dividend, payable on December 15, 2015, to holders of record on November 30, 2015, in the amount of $0.00583 per share, which represents $0.07 on an annualized basis. The aggregate dividend payments during Q3 2015 were $1,232,194. Subsequent to the end of the period, the Company declared aggregate dividends of $825,865 for the months of October and November. All dividend payments have come, or will come, from available free cash flow of the Company.
Assets
Portfolio Performance Profile
On a quarterly basis, the Company carries out a performance review of the portfolio on royalty agreements acquired and loan receivable balance, with December 31, 2014 and September 30, 2014 outlined as follows:
To view the bar graph accompanying this press release, please visit the following link: http://media3.marketwire.com/docs/1033251_charts.pdf
Since December 2014, Portoflio Performance for the Off Target category has remained at a similar level while the Above Target and Bought Out categories have shown significant growth, in line with management’s expectation, reflecting Grenville’s investment strategy to invest across a portfolio of companies diversified by currency, sector and investment type.
Average Royalty Payment per Million Invested(1)
The average royalty payment per million invested(1) for the month of September 2015 was $250,583, prior to an adjustment to $242,198 to account for the adjusted royalty payments related to the INOVx contract buyout. Including realized gains on contract buyouts, the result was $369,419 for the month of September.
The rolling twelve-month average of total royalty income(1) was $306,018 for the period ended September 30, 2015, up from $216,967 at the end of Q3 2014 and $246,686 at the end of Q2 2015.
To view the bar graph accompanying this press release, please visit the following link: http://media3.marketwire.com/docs/1033251_charts.pdf
Rolling Three-Month Average Investment per Month(1)
As of October 31, 2015, the rolling three-month average investment per month(1) was $2,904,642.
To view the bar graph accompanying this press release, please visit the following link: http://media3.marketwire.com/docs/1033251_charts.pdf
Rolling Three-Month Average Investment per Transaction(1)
As of October 31, 2015, the rolling three-month average investment per transaction(1) was $814,439.
To view the bar graph accompanying this press release, please visit the following link: http://media3.marketwire.com/docs/1033251_charts.pdf
Outlook
As the Company continues to scale its business, it is building a diversified U.S. and Canadian dollar portfolio consisting of cyclical, neutral and defensive asset classes and varying revenue growth categories. The portfolio has been designed through diversification and asset selection to mitigate a level of portfolio company impairment that would be expected in small to medium enterprise (SME) investments. The Company has invested more than $47.4 million of capital across 51 investments in 28 portfolio companies. Management is building a balanced portfolio based on the pricing of risk in the SME market a rate of $250,000 of annual revenue per million of invested capital (1), equivalent to a portfolio return of 25%. The portfolio has reached a scale at which it is generating stable income and Adjusted EBITDA (1), allowing the Company to declare dividends. The four contract buyouts announced since the beginning of Q3 2015 generated a return in excess of the 25% targeted portfolio return and represent a material ancillary revenue source for the company. Management believes contract buyouts will continue to form a meaningful part of the Company’s annual revenue stream. However, given their nature, the timing of buyouts and buydowns will be more irregular than monthly royalty revenue streams of the Company’s core portfolio, which are consistent in nature. Total contract buyouts to date of $12.1 million have generated additional cash flow to the business of $5.0 million.
Grenville’s royalty agreements with its portfolio companies provided revenue to the Company of approximately $4.5 million for the three-month period ended September 30, 2015. As of November 16, 2015, management estimates October 2015 revenues will be approximately $0.775 million, excluding the $2.31 million in revenue as a result of the buyout of the Company’s Above Security and INOVx investments. Since the end of the third quarter, Grenville has completed $3.6 million in new investments. Operating expenses for Q3 2015, excluding any foreign exchange effects, were approximately $0.21 million per month, and are estimated to be in the range of $2.2 million to $2.8 million on an annualized basis in Q4 2015.
Grenville’s unique capital offering continues to fill an expansive niche in North American small to medium enterprise, growth-capital markets. With continued access to funding accretive to shareholder value, management is confident the Company will be able to add new portfolio companies to its existing portfolio holdings. Each new portfolio company added will further diversify and strengthen Grenville’s existing portfolio balance. Management also believes that the revenue contribution per portfolio-company added will be priced at roughly the same rate as existing companies within the portfolio.
Grenville may also expand the range of financial instruments and solutions employed where the use of these additional instruments can enhance or defend portfolio value, including secured and unsecured short-term debt instruments, obtaining security on existing investments and equity-based instruments. At the present time, the holding of secured and unsecured short-term debt instruments, totaling $1.9 million in aggregate investments, forms an immaterial percentage of the Company’s total investments.
Grenville’s financial statements and management’s discussion and analysis for the three- and six-month periods ended September 30, 2015 will be filed on SEDAR at www.sedar.com and will be 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.
Investor Relations Appointment
Grenville is pleased to announce that it has retained the services of Renmark Financial Communications Inc. (“Renmark”) to handle its investor relations activities. In consideration of the services to be provided, Grenville has agreed to pay a monthly retainer of $7,000 starting November 1st, 2015 to Renmark. Renmark does not have any interest, directly or indirectly, in Grenville or its securities, or any right or intent to acquire such an interest.
Conference Call Details
Grenville will host a conference call to discuss these results at 8:00 a.m. Eastern Time today, Tuesday, November 17, 2015. William Tharp, CEO, Donnacha Rahill, CFO and Steven Parry, Executive Chairman, will co-chair the call. Participants should call (647) 788-4922 or (877) 291-4570 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 74848305. The replay recording will be available until 11:59 p.m. Eastern Time, November 30, 2015.
An audio recording of the conference call will be also available on the investors’ page of Grenville’s website at flowcap.com.
About Grenville
Based in Toronto, Grenville Strategic Royalty Corp. is a publicly-traded royalty company that makes investments in established businesses with revenues of up to $50 million dollars. Grenville generates revenues from royalty payments and buyouts from contracts. The non-dilutive royalty financing structure offered by Grenville competes directly with traditional equity to meet the long-term financing needs of companies on more attractive commercial terms. To date, Grenville has announced cash inflows of $21.2 million from $47.4 million invested in the two years since its inception.
CONTACT INFORMATION
Grenville Strategic Royalty Corp.
William (Bill) R. Tharp
President and Chief Executive Officer
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 statements are not representative of historical facts or information or current condition, but instead represent only Grenville’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of Grenville’s control. Generally, such forward-looking information or 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 Grenville’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 Grenville’s business and the markets in which it operates; the amount and timing of the payment of dividends by Grenville; and Grenville’s financial position. By identifying such information and statements in this manner, Grenville 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 Grenville to be materially different from those expressed or implied by such information and statements. ΓÇ¿An investment in securities of Grenville 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 Grenville; the volatility of Grenville’s share price; Grenville’s limited operating history; Grenville’s ability to generate sufficient revenues; Grenville’s ability to manage future growth; the limited diversification in Grenville’s existing investments; ability to negotiate additional royalty purchases from new investee companies; dependence on the operations, assets and financial health of investee companies; limited ability to exercise control or direction over investee companies; potential defaults by investee companies and the unsecured nature of Grenville’s investments; Grenville’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 Grenville; the potential impact of Grenville being classified as a Passive Foreign Investment Company; Grenville’s ability to pay dividends in the future and the timing and amount of those dividends; reliance on key personnel, particularly Grenville’s founders; dilution of shareholders’ interest through future financings; and general economic and political conditions. Although Grenville has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and 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 document, Grenville 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 Grenville’s business and its ability to identify and close new opportunities with new investees are material factors that Grenville 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 Grenville’s existing investees will continue to make royalty payments to Grenville as and when required; that the businesses of Grenville’s investees will not experience material negative results; that Grenville 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 Grenville will have the ability to raise required equity and/or debt financing on acceptable terms; and that Grenville will have sufficient free cash flow to pay dividends. Grenville 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, Grenville primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies.
Although Grenville 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.
For additional information with respect to these risks, uncertainties and assumptions, please refer to the “Risk Factors” section of Grenville’s annual information form dated February 11, 2015 and the other public filings of Grenville available on SEDAR at www.sedar.com. The forward-looking information and statements contained in this press release is made as of the date hereof, and Grenville does not undertake to update any forward-looking information and/or statement that is contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward looking information and statements attributable to Grenville or persons acting on its behalf is expressly qualified in its entirety by this notice.
Caution Regarding Non-IFRS Financial Measures – Grenville uses certain measures in this press release which do not have a standardized meaning as prescribed by International Financial Reporting Standards (“IFRS”) and are unlikely to be comparable to similar measures presented by other issuers. These non-IFRS measures, including adjusted EBITDA, average royalty payment per million investment and rolling three month average investment per transaction, have been presented in this press release in order to provide shareholders and potential investors with additional information regarding Grenville, but should not be considered in isolation or as a substitute for, or more meaningful than, measures prepared in accordance with IFRS, such as net income (loss) or cash flow from operating activities. Please refer to the Company’s Management’s Discussion and Analysis as at and for the three and nine months ended September 30, 2015 for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS.
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.
