- Records Royalty Payment and Interest Income of
$1.2 million in Q3 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
- Royalty Payment and Interest Income of $1,187,000
- Adjusted EBITDA(1) of $556,000
- Free Cash Flow(1) of $166,000
“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
Canadian dollars |
Three months ended September 30,
2017 |
Three months ended September 30,
2016 |
Revenues |
$ |
(1,222,621 |
) |
$ |
(854,503 |
) |
Royalty Payment Income and Interest and Fee Income Earned |
|
1,193,359 |
|
|
2,044,058 |
|
Adjusted EBITDA(1) |
|
555,774 |
|
|
1,376,396 |
|
Free Cash Flow(1) |
|
166,068 |
|
|
163,992 |
|
(Loss)/Profit for the period |
|
(1,763,068 |
) |
|
(1,690,843 |
) |
Basic Earnings/(Loss) per share |
|
(0.0166 |
) |
|
(0.0159 |
) |
Diluted Earnings/(Loss) per share |
|
(0.0166 |
) |
|
(0.0159 |
) |
Weighted basic average number of shares outstanding |
|
106,317,656 |
|
|
105,596,427 |
|
Royalty agreements acquired in period |
|
425,000 |
|
|
370,797 |
|
(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
$(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 EarnedRoyalty 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 ExpenseTotal
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 TaxesLoss 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
|
As at September 30, 2017 |
As at December 31, 2016 |
Cash and cash equivalents |
$ |
8,611,474 |
$ |
6,202,412 |
Royalty agreements acquired, promissory notes and equity
investments |
|
25,273,960 |
|
37,562,379 |
Total assets |
|
42,630,590 |
|
49,426,466 |
OutlookThe 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.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
DetailsGrenville 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
grenvillesrc.com.
About GrenvilleBased 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
StatementsThis 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 ParryChief Executive OfficerTel: (416)
777-0383
Grenville Strategic Royalty (TSXV:GRC)
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