TORONTO, Ontario, May 10, 2017 – 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, 2017 (“Q1 2017”). Financial references are in Canadian dollars unless otherwise specified.
2017 First Quarter Financial Highlights
Operational Highlights
“Our results are starting to reflect the important improvements we have made in the business during the last twelve months. We have reduced our cost structure to a point where we generate cash on a consistent basis. While we are still seeing fair value decreases on the balance sheet related to the legacy portfolio, we are generating significant free cash flows related to Contract Buyouts, including the April buyout of Aquam. The Aquam buyout increased capital available for new investments to approximately $10 million, which along with investments by our joint venture partners is sufficient to fund a robust program in 2017,” said Steve Parry, Chief Executive Officer of Grenville. “To put this in perspective, we have generated more than $40 million in cash from the $66 million invested to date. The core positions within the portfolio are producing and align well with our go-forward investment model reflecting the profound learning we have extracted from the first four years of deploying this unique SME royalty product.”
Financial Highlights
Revenues
Revenues were $(3,442,000) for Q1 2017, compared to $(2,833,000) for the same period in 2016. With the adoption of IFRS 9, certain non-cash items are recognized in revenue. Revenues were negatively impacted by net non-cash items of $4,793,000 compared to $5,451,000 for the same period in 2016. This non-cash amount of $4,793,000 relates to $1,036,000 for an unrealized gain from the change in fair value of royalty agreements acquired and promissory notes receivable which is offset by a realized loss of $5,145,000 from investments written-off and unrealized foreign exchange loss of $685,000. The realized loss from investments written off relates to two investments (BG Furniture Inc. and PFO Global Group) that were written-off in Q1 2017 as the recovery is expected to be small. The unrealized foreign exchange loss related to the translation of the royalty agreements acquired and promissory notes receivable denominated in U.S. dollars and reflects the movement in the exchange rate from $1.3427 at December 31, 2016 to $1.3299 at March 31, 2017.
Royalty Payment Income and Interest Income Earned
Royalty payment income plus interest income earned was $1,334,000 for Q1 2017, compared to $2,581,000 in the same period in 2016. The change was due to no royalty payment income revenue recognized in Q1 2017 from eight investees that have failed to pay royalties for at least three months. 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.
Operating Expense
Total operating expenses were $1,251,000 for Q1 2017, compared to $1,058,000 for the same period in 2016. The $193,000 increase is due to an once-off $400,000 HST provision expense offset by $85,000 lower salaries due to management team taking a lower salary and two fewer employees, lower professional fees of $69,000 and lower office and general administrative expenses of $36,000.
Adjusted EBITDA(1)
Adjusted EBITDA(1) was $157,000 for Q1 2017, compared to $1,587,000 for the same period in 2016. The change was due to the lower royalty payment income and the HST provision expense, each of which are referenced above.
Free Cash Flow(1)
Free cash flow(1) was $52,000 for Q1 2017, compared to negative $639,000 for the same period in 2016. The improvement was due to the crystallization of short-term working capital timing differences of $1,112,000 in the prior period, Q1 2016, as well as higher income tax payable of $255,000 in Q1 2016. These improvements were partially offset by lower royalty payment income received of $810,000 in Q1 2017.
Income (Loss) After Taxes
Income (Loss) after taxes was $(3,792,000) for Q1 2017, compared to $(3,191,000) in the same period in 2016. The change was due to an unrealized loss from the change in fair value of royalty agreements acquired and promissory notes receivable (net of realized loss from investments written-off) of $1,189,000, lower royalty payment income of $1,172,000 and the once-off $400,000 HST provision expense in Q1 2017. The impact of these items was partially offset by a lower unrealized foreign exchange loss of $1,848,000.
Assets
Outlook
The Company has invested more than $66 million of capital in 36 portfolio companies, generated Adjusted EBITDA(1) of $16.6 million and has generated free cash flow(1) of $8.1 million since inception in July 2013. The core of the portfolio has reached a scale at which it is generating Adjusted EBITDA(1) .
Grenville’s royalty agreements with its portfolio companies generated Adjusted EBITDA(1) to the Company of approximately $0.2 million for the three-month period ended March 31, 2017. As of May 10, 2017, the Company estimates that for the month of April 2017, royalty payment income, interest earned and Contract Buyout gain will be $3.35 million, Free Cash Flow will be $3.6 million and Adjusted EBITDA will be $3.2 million.
Based on information available as of May 10, 2017, management believes that there are additional investments in the portfolio that represent Contract Buyout opportunities in the next few quarters. The Company believes that the potential gross amount that could be received from these Contract Buyouts is up to $4.0 million spread over the next few quarters. The Company believes this would significantly increase Adjusted EBITDA(1) up to $2.0 million and Free Cash Flow(1) up to $1.4 million. Including the cash balance as of May 10, 2017, of $9.8 million, the available capital for investment in new companies would be up to $13.1 million. Given the nature of Contract Buyouts, the timing and the amount of Contract Buyouts are uncertain and any estimates included here may vary either positively or negatively.
Operating expenses (excluding share-based compensation and HST provision expense) for Q1 2017, were approximately $0.25 million per month and are estimated to be in the range of $2.4 million to $3.0 million on an annualized basis in Q2 2017.
Grenville’s unique capital offering continues to fill an expansive niche in the North American small to medium sized 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’s financial statements and management’s discussion and analysis for the three-month period ended March 31, 2017, 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, Thursday, May 11, 2017. 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 17234196. The replay recording will be available until 11:59 p.m. Eastern Time, May 18, 2017.
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.
For further information, please contact:
Grenville Strategic Royalty Corp.:
Steven Parry
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 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 under the heading “Risk Factors” on pages 16 to 22 of the Annual Information Form of the Company dated February 11, 2015 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.
