Market Overview

Grenville Strategic Royalty Announces 2017 First Quarter Results

Share:



Grenville Strategic Royalty Announces 2017 First Quarter Results

Grenville Strategic Royalty Announces 2017 First Quarter Results

Records Royalty Payment Income of $1.3 million in Q1 2016

TORONTO, ONTARIO--(Marketwired - May 10, 2017) - Grenville Strategic Royalty Corp. (TSX: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

  • Royalty Payment Income of $1,333,000
  • Adjusted EBITDA(1) of 157,000
  • Free Cash Flow(1) of $52,000

Operational Highlights

  • Closed four investments subsequent to the end of the quarter, consisting of three new investments of US$150,000 in Medworxs LLC, $125,000 in Fixt Wireless Inc. and US$1.5 million in ConnectAndSell, Inc. and one follow-on investment of US$125,000 in Factor 75
  • Announced a Contract Buyout of $5 million, plus royalties earned, on the $2 million investment in Aquam Corporation, subsequent to the end of the quarter

"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

Canadian dollars Three months ended

March 31, 2017
Three months ended

March 31, 2016
Revenues $ (3,442,258 ) $ (2,833,267 )
Royalty Payment Income and Interest Income Earned 1,333,641 2,581,429
Adjusted EBITDA(1) 157,101 1,586,562
Free Cash Flow(1) 52,232 (639,064 )
(Loss)/Profit for the period (3,792,281 ) (3,190,773 )
Basic Earnings/(Loss) per share (0.0357 ) (0.0306 )
Diluted Earnings/(Loss) per share (0.0357 ) (0.0306 )
Weighted basic average number of shares outstanding 106,297,830 104,227,591
Royalty agreements acquired in period 98,130 5,373,594
(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 $(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 a 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

As at

March 31,

2017
As at

December 31,

2016
Cash and cash equivalents $ 6,609,776 $ 6,202,412
Royalty agreements acquired and promissory notes 32,563,987 37,562,379
Total assets 46,303,933 49,426,466

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.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 cal

View Comments and Join the Discussion!