Grenville Strategic Royalty Corp. (TSX-V:GRC) (“Grenville” or the
“Company”) today announced its financial and operating results for
the three- and six-month periods ended June 30, 2017. Financial
references are in Canadian dollars unless otherwise specified.
2017 Second Quarter Financial Highlights
- Royalty Payment Income of $1,026,000
- Adjusted EBITDA(1) of $3,372,000
- Free Cash Flow(1) of $3,517,000
Operational Highlights
- Closed five new investments, consisting of US$150,000 in
MedWorxs LLC, $125,000 in Fixt Wireless Inc., US$1,500,000 in
ConnectAndSell, Inc., US$350,000 in Kare Intellex Inc. and
US$500,000 in Frequentz, Inc., and one follow-on investment of
US$125,000 in Factor 75
- Completed a Contract Buyout of $5 million, plus royalties
earned, on the $2 million investment in Aquam Corporation
- Acquired 18.2 million shares in Lattice Biologics Ltd at an
issue price of $0.20 per share in exchange for the extinguishment
of the US$2,000,000 royalty agreement and US$700,000 in overdue
royalty payments
- Closed after the end of the quarter one new investment in
Hybrid Financial Ltd. for $425,000
“We generated positive free cash flow again this
quarter as the performing investments and our cost restructuring
have established a sustainable path forward for the business. In
total, we have generated more than $41 million in cash from the
nearly $68 million invested to date,” said Steve Parry, Chief
Executive Officer of Grenville. “The Aquam buyout represents our
seventh successful Contract Buyout, which provide non-dilutive cash
to redeploy into new investments. The five new investments during
the quarter and one new investment after the end of the quarter
demonstrate we have returned to a consistent pace of capital
deployment. We have sufficient cash on hand to continue this pace
through calendar 2017, with a robust pipeline of new opportunities
that align with the investment criteria of our new investment model
that we implemented in mid-2016. We continue to focus on generating
monthly royalty income above $400,000 where the business generates
sustainable free cash flows.”
Financial Highlights
Canadian dollars |
Three months ended June 30, 2017 |
Three months ended June 30, 2016 |
Revenues |
$ |
(2,067,408 |
) |
$ |
1,290,572 |
|
Royalty Payment Income and Interest and Fee Income Earned |
|
1,068,560 |
|
|
2,096,718 |
|
Adjusted EBITDA(1) |
|
3,371,884 |
|
|
507,700 |
|
Free Cash Flow(1) |
|
3,517,919 |
|
|
340,161 |
|
(Loss) for the period |
|
(2,456,208 |
) |
|
(633,250 |
) |
Basic (Loss) per share |
|
(0.0231 |
) |
|
(0.0060 |
) |
Diluted (Loss) per share |
|
(0.0231 |
) |
|
(0.0060 |
) |
Weighted basic average number of shares outstanding |
|
106,317,656 |
|
|
106,267,252 |
|
Royalty agreements acquired in period |
|
3,695,503 |
|
|
427,575 |
|
(1) Adjusted EBITDA and Free cash flow are non-IFRS measures.
Refer to section Definition of Non-IFRS Measures for further
explanation and definitions.
RevenuesRevenues were
$(2,067,000) and $(5,510,000) for the three-month (Q2 2017) and
six-month (YTD 2017) periods ended June 30, 2017, respectively,
compared to $1,291,000 and $(1,543,000) 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 $3,135,000 made
up of $1,213,000 of an unrealized loss in writing-down the fair
value of royalty agreements acquired and promissory notes
receivable, $1,432,000 for the unrealized loss in the change in the
fair value of the shares held in Lattice Biologics Ltd. and the
balance for unrealized foreign exchange loss.
Royalty Payment Income and Interest and
Fee Income EarnedRoyalty payment income plus interest and
fee income earned was $1,069,000 and $2,419,000 for Q2 2017 and YTD
2017, respectively, compared to $2,097,000 and $4,715,000 for the
corresponding periods in 2016. The change in the quarterly period
was due to no royalty payment income recognized in Q2 2017 from
seven investees that have failed to pay royalties for at least
three months compared to $825,000 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 ExpenseTotal
operating expenses were $803,000 and $2,054,000 for Q2 2017 and YTD
2017, respectively, compared to $1,657,000 and $2,715,000 for the
corresponding periods in 2016. The $854,000, or 52%, decrease was
due to an overall $179,000 decrease in expenses in Q2 2017 and the
$675,000 contract payment made to the former Chief Executive
Officer in the prior year period.
Adjusted EBITDA(1) Adjusted
EBITDA(1) was $3,372,000 and $3,529,000 for Q2 2017 and YTD 2017,
respectively, compared to $508,000 and $2,094,000 for the
corresponding periods in 2016. The improvement in the quarterly
period is primarily due to the $3,000,000 realized gain on the
Aquam Contract Buyout and lower operating expenses.
Free Cash Flow(1)Free cash
flow(1) was $3,518,000 and $3,570,000 for Q2 2017 and YTD,
respectively, compared to $340,000 and $(251,000) for the
corresponding periods in 2016. The improvement in the quarterly
period is primarily due to the $3,000,000 realized gain on the
Aquam buyout.
Loss After TaxesLoss after
taxes was $2,456,000 and $6,248,000 for Q2 2017 and YTD 2017,
respectively, compared to $633,000 and $3,824,000 for the
corresponding periods in 2016. The change in the quarterly period
was due to an increase of $2,150,000 in the realized loss from
investments written-off, lower royalty payment income of $945,000,
higher unrealized foreign exchange loss of $334,000, which was
partially offset by a higher unrealized gain of $922,000 from
investments derecognized and lower operating costs.
Assets
|
As at June 30, 2017 |
As at December 31, 2016 |
Cash and cash equivalents |
$ |
7,984,838 |
$ |
6,202,412 |
Royalty agreements acquired and promissory notes |
|
25,376,712 |
|
37,562,379 |
Equity securities in in investee companies |
|
2,190,617 |
|
- |
Total assets |
|
43,685,117 |
|
49,426,466 |
Outlook
The Company has invested almost $68 million of
capital in 39 portfolio companies, generated Adjusted EBITDA(1) of
$19.5 million and generated free cash flow(1) of $11.6 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 $3.4 million, including the $3.0 million Contract
Buyout of Aquam, for the three-month period ended June 30, 2017. As
of August 8, 2017, the Company estimates that for the month of July
2017, royalty payment income, interest and fee income will be
$350,000, Free Cash Flow will be $50,000 and Adjusted EBITDA will
be $100,000.
Based on information available as of August 8,
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) for Q2 2017, were approximately $245,000 per month
and are estimated to be in the range of $2.4 million to $3.0
million on an annualized basis in Q3 2017. The Company’s cash
position as at August 8, 2017, is approximately $8.1 million.
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 June 30, 2017, will be filed today on SEDAR at
www.sedar.com and also available on Grenville’s website at
www.grenvillesrc.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, August 9, 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 61059448.
The replay recording will be available until 11:59 p.m. Eastern
Time, August 16, 2017.
An audio recording of the conference call will
be also available on the investors’ page of Grenville’s website at
grenvillesrc.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.
Forward-Looking Information and
Statements
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.
For further information, please contact:
Grenville Strategic Royalty Corp.:
Steven Parry
Chief Executive Officer
Tel: (416) 777-0383
Grenville Strategic Royalty (TSXV:GRC)
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