TORONTO, ONTARIO–(Marketwired – Aug. 18, 2015) – Grenville Strategic Royalty Corp. (TSX VENTURE:GRC) (“Grenville” or the “Company”) today announced its financial and operating results for the three- and six-month periods ended June 30, 2015. Financial references are in Canadian dollars unless otherwise specified.
2015 Second Quarter (Q2 2015) Highlights
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Portfolio Highlights
“The portfolio continues to perform well, with Q2 representing our sixth consecutive quarter of record growth since going public,” said William (Bill) R. Tharp, President and Chief Executive Officer of Grenville. “Our business model continues to fill a gap in the market for established small-to-medium enterprises in search of capital to fund growth. During the quarter we funded four new companies, continuing to diversify the portfolio, and made six follow-on investments into existing portfolio companies, for a total of 10 investments. We also achieved our first successful exit, locking in returns which can be redeployed into new opportunities within our robust pipeline of prospective investments and further support the economics of our dividend. The Wmode exit will have a material, positive impact on our Q3 results, with or without impairments. We believe positive exits, like WMode, will balance and offset the impairment of a portion of investments inevitable in an SME portfolio. This cushion is in addition to that already built into the portfolio allowing us to further protect and enhance the core-return being generated.”
Financial Highlights for Second Quarter 2015
Revenues
Revenues were $2,298,542 and $3,909,234 for Q2 2015 and the six-month period ended June 30, 2015 (YTD 2015), respectively, compared with $357,090 and $504,161 for the corresponding periods in 2014. The substantial increase in revenues was due to total aggregate investments increasing by 257% between Q2 2014 and Q2 2015, as the Company continues to scale its portfolio. The most significant component of revenues is royalty payment income, which represented 88% of total revenue in Q2 2015.
Operating Expense
Total operating expenses were $881,775 and $167,159 for Q2 2015 and YTD 2015, respectively, compared to $581,700 and $4,410,017 for the corresponding periods last year. The increase in the quarterly period included a net foreign exchange loss of $219,859, of which $209,645 related to an unrealized foreign exchange loss following the translation of royalty agreements acquired denominated in U.S. dollars and a share-based payment expense of $39,684, compared to a net foreign exchange loss of $130,527 in the same period last year. Operating expenses for Q2 2015, excluding foreign exchange losses, came in at approximately $210,000 per month.
Total expenses in YTD 2015 included a net foreign exchange gain of $1,041,434, of which $1,025,702 related to an unrealized foreign exchange gain following the translation of royalty agreements acquired denominated in U.S. dollars, and a share-based payment expense of $67,643, compared to a net foreign exchange loss of $125,476 in the same period last year. Total operating expenses for the corresponding 2014 period were $4,410,017 and included expenses of $3,636,197 directly attributable to the Company’s reverse takeover (RTO).
Income (loss) After Taxes
Income (loss) after taxes was $(25,716) and $1,373,267 for Q2 2015 and YTD 2015, respectively, compared to $(224,610) and $(3,905,856) for corresponding periods last year. The improvements were due to higher revenues in each of the 2015 periods, as the Company scales its portfolio, as well as the foreign exchange gain in the YTD 2015 period and the RTO expense in 2014.
Income (loss) after taxes for Q2 2015 and YTD 2015 includes the impact of an impairment provision of $1,008,405 related to one investment which as of June 30, 2015 was in default due to non-payment of royalty payments. The Company has elected to recognize a provision against the entire carrying amount of the investment. Management will continue to review the financial position of the investee and the appropriateness of the impairment provision.
Adjusted EBITDA(1)
Adjusted EBITDA was $455,295 and $1,578,549 for Q2 2015 and YTD 2015, respectively, compared to $17,446 and $10,229 for corresponding periods last year. The increases were due to higher revenues driven by the new royalty agreements acquired since the end of June 2014 which were partially offset by the impairment provision of $1,008,405 referenced above.
Free Cash Flow(1)
Free cash flow was $776,655 and $942,269 for Q2 2015 and YTD 2015, respectively, compared to $(568,867) and $96,081 for the corresponding periods last year. Free cash flow can be impacted by short-term timing differences in the receipt of royalty payments and tax recoveries.
Dividend
Grenville declared an August dividend, payable on September 15, 2015, to holders of record on August 31, 2015, in the amount of $0.00416 per share, which represents $0.05 on an annualized basis. The aggregate dividend payments during Q2 2015 were $1,077,005. Subsequent to the end of the period, the Company declared aggregate dividends of $820,484 for the months of July and August. All dividend payments have come, or will come, from available free cash flow of the Company.
Assets
Average Royalty Payment per Million Invested(1)
The average royalty payment per million invested(1) for the month of June 2015 was $252,661, which is in line with the Company’s target of $250,000 per month.
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Rolling Three-Month Average Investment per Month(1)
As of July 31, 2015, the rolling three-month average investment per month(1) was $1,998,937.
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Rolling Three-Month Average Investment per Transaction(1)
As of July 31, 2015, the rolling three-month average investment per transaction(1) was $728,949.
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Outlook
As the Company continues to scale its business, it is building a diversified portfolio consisting of cyclical, neutral and defensive asset classes. The strength and diversity of this portfolio has also been designed to mitigate a level of portfolio impairment that would be expected in small to medium enterprise (SME) investments. The Company has invested more than $37 million of capital across 40 investments in 25 portfolio companies. Management’s target in building a balanced portfolio is based on the pricing of risk in the SME market a rate of $250,000 of average royalty per million invested(1). The portfolio has reached a scale at which, as designed, it is generating stable income and Adjusted EBITDA(1), allowing the Company to declare dividends.
Grenville’s royalty agreements with its portfolio companies provided revenue to the Company of approximately $2.3 million for the three-month period ended June 30, 2015. As of August 18, 2015, management estimates July 2015 revenues will be approximately $0.79 million, net of the $1.68 million in revenue as a result of the gain (over the carrying amount of the investment) from the exit of the Company’s Wmode investment. Operating expenses for Q2 2015, excluding any foreign exchange effects, came in at approximately $0.2 million per month, and are estimated to run in the range of $2.2 million and $2.8 million on an annualized basis in Q3 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, modifications to its royalty payment structure, the granting of security on existing investments and equity-based instruments. At the present time, the use of such modifications and additions does not form a material percentage of its investments, at $1.2 million, and is included in the Company’s non IFRS measurement “Average royalty payment per million(1)“.
Grenville’s financial statements and management’s discussion and analysis for the three- and six-month periods ended June 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.
Conference Call Details
Grenville will host a conference call to discuss these results at 10:00 a.m. Eastern Time, Wednesday, August 19, 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 78044156. The replay recording will be available until 11:59 p.m. Eastern Time, August 26, 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
Grenville is a Toronto-based company that was formed to provide royalty-based finance solutions by acquiring revenue streams generated by growing industrial and technology businesses. Grenville has identified a large and underserviced finance market for companies generating up to $50 million in revenue, many of which are well managed and generating improving cash flow, but face difficult financing hurdles from traditional debt and equity markets. The non-dilutive royalty financing structure offered by Grenville can bridge the financing needs of these companies until traditional debt or equity is available to them on more attractive commercial terms. The application of Grenville’s royalty financing structure into sectors not traditionally serviced by royalty companies represents a new and innovative financing model – Capital Simplified – that has already attracted a considerable number of opportunities with attractive potential returns.
For more information, please contact:
Grenville Strategic Royalty Corp.
William (Bill) R. Tharp
President and Chief Executive Officer
(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; expenses and operations; anticipated cash needs and need for additional financing; anticipated use of the net proceeds of the Offering; 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. 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 lack of 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; 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, rolling three month average investment per transaction and rolling three month average investment per month 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 six months ended June 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.
