TORONTO, Ontario, November 21, 2017 – Grenville Strategic Royalty Corp. (TSXV: GRC) (“Grenville” or the “Company”) today announced its financial and operating results for the three- and nine-month periods ended September 30, 2017. Financial references are in Canadian dollars unless otherwise specified.
2017 Third Quarter Financial Highlights
“For the fifth time in the last six quarters we generated positive free cash flow in the quarter. The core of the portfolio continues to perform, which together with the cost discipline we’ve implemented, provide a stable foundation for future growth,” said Steve Parry, Chief Executive Officer of Grenville. “At present, the markets are valuing the business at 33% of book value despite the portfolio generating positive free cash flow, the potential for additional contract buyouts and the improved portfolio performance. The pipeline is as strong as it’s ever been and we screened more opportunities in the quarter than ever before. While the timing of new investments has been lumpy recently, we remain confident in our ability to access high-quality opportunities based on the existing pipeline. In the interim, we are building our cash position – which is ready to deploy – and we are being vigilant as we select the best opportunities for our next round of investments.”
Financial Highlights
(1) 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 $(1,223,000) and $(6,732,000) for the three-month (Q3 2017) and nine-month (YTD 2017) periods ended September 30, 2017, respectively, compared to $(855,000) and $(2,397,000) for the corresponding periods in 2016. With the adoption of IFRS 9, certain non-cash items are recognized in revenue. Revenues in the quarterly period were negatively impacted by net non-cash items of $2,427,000 compared to $3,014,000 for the same period in 2016. This non-cash amount relates to $1,382,000 for an unrealized loss from the change in fair value of royalty agreements acquired and promissory notes receivable, $365,000 for an unrealized loss in the change of the fair value of the shares held in Lattice Biologics Ltd. and $680,000 of unrealized foreign exchange loss.
Royalty Payment Income and Interest and Fee Income Earned
Royalty payment income plus interest and fee income earned was $1,193,000 and $3,574,000 for Q3 2017 and YTD 2017, respectively, compared to $2,044,000 and $6,698,000 for the corresponding periods in 2016. The change in the quarterly period was due to no royalty payment income recognized in Q3 2017 from seven investees that have failed to pay royalties for at least three months compared to $810,000 of income recognized from this group in the same period last year. 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 $713,000 and $2,767,000 for Q3 2017 and YTD 2017, respectively, compared to $876,000 and $3,591,000 for the corresponding periods in 2016. The $163,000, or 19%, decrease in the quarter reflects management’s initiatives to reduce staffing costs, travel and professional fees.
Adjusted EBITDA(1)
Adjusted EBITDA(1) was $556,000 and $4,085,000 for Q3 2017 and YTD 2017, respectively, compared to $1,376,000 and $3,471,000 for the corresponding periods in 2016. The change in the quarterly period is primarily due to the decrease in royalty payment income as described above.
Free Cash Flow(1)
Free Cash Flow(1) was $166,000 and $3,737,000 for Q3 2017 and YTD, respectively, compared to $164,000 and $(98,000) for the corresponding periods in 2016.
Loss After Taxes
Loss after taxes was $1,763,000 and $8,012,000 for Q3 2017 and YTD 2017, respectively, compared to $1,691,000 and $5,515,000 for the corresponding periods in 2016.
Assets
Outlook
The Company has invested over $68 million of capital in 39 portfolio companies, generated Adjusted EBITDA(1) of $20.1 million since inception and generated free cash flow(1) of $11.8 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).
Grenville’s royalty agreements with its portfolio companies generated Adjusted EBITDA(1) to the Company of approximately $0.6 million for the three-month period ended September 30, 2017. As of November 21, 2017, the Company estimates that for the month of October 2017, royalty payment income, interest and fee income will be $400,000 and Adjusted EBITDA will be approximately $200,000.
Based on information available as of November 21, 2017, management believes that there are additional investments in the portfolio that represent Contract Buyout opportunities. The Company believes that the potential gross amount that could be received from these Contract Buyouts is up to $4.0 million. 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. 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 depreciation) for Q3 2017, were approximately $220,000 per month and are estimated to be in the range of $2.4 million to $3.0 million on an annualized basis in Q4 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 September 30, 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, Wednesday, November 22, 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 5090059. The replay recording will be available until 11:59 p.m. Eastern Time, November 29, 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.
