CALGARY, ALBERTA–(Marketwired – May 8, 2017) –
NOT FOR DISTRIBUTION IN THE UNITED STATES.
FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW.
Alaris Royalty Corp. (“Alaris” or the “Corporation“) (TSX:AD) is pleased to announce its results for the three months ended March 31, 2017. The results are prepared under International Financial Reporting Standards (“IFRS“) as issued by the International Accounting Standards Board (“IASB“).
Highlights:
- Replaced the senior lender for Group SM paving the way to restart partial distributions in June 2017 (annualized rate of $2.6 million per year);
- Subsequent to quarter end, KMH entered into an investment agreement with a third party to fund a recapitalization of the Canadian business, the key transaction in KMH’s strategic process. The third party has paid a deposit in excess of 50% of the transaction amount held in escrow and the transaction is subject only to Ontario Ministry of Health approval and Alaris consent. This transaction, along with two smaller transactions under way, is expected to provide Alaris with the $26.4 million in proceeds it has been expecting for its units in KMH;
- Improved outlook for SCR with fixed distributions of $100,000 per month scheduled to begin in July 2017 with a variable portion in future months as cash flow continues to improve;
- Added a new Partner with a USD$4.1 million contribution to ccCommunications, LLC (“ccComm”);
- Increased net cash from operating activities by 6.5%, +5.1% on a per share basis;
- Recorded revenue from Partners of $20.9 million, $0.57 per share, and Normalized EBITDA of $18.1 million, $0.50 per share, both lower than the prior year period due to profitable redemptions in 2016; and
- Continued to receive full monthly distributions from Agility alongside meaningful monthly payments against the USD$1.7 million in unpaid distributions from 2016. Also recently extended Agility’s ability to repurchase Alaris’ units to September 30, 2017 subject to several conditions including US$150,000 per month payments against unpaid distributions;
| Three Months Ended March 31 | 2017 | 2016 | % Change | |||
| Revenue per share | $ | 0.57 | $ | 0.68 | -16.2 | % |
| Normalized EBITDA per share | $ | 0.50 | $ | 0.56 | -10.7 | % |
| Net cash from operating activities per share | $ | 0.41 | $ | 0.39 | +5.1 | % |
| Dividends per share | $ | 0.405 | $ | 0.405 | +0.0 | % |
| Basic earnings per share | $ | 0.33 | $ | 0.57 | -42.1 | % |
| Fully diluted earnings per share | $ | 0.32 | $ | 0.57 | -43.9 | % |
| Weighted average basic shares outstanding (000’s) | 36,451 | 36,303 | ||||
1 Using the weighted average shares outstanding for the period.
The three months ended March 31, 2017 was the first quarter in a number of years where there were decreases in both revenue and EBITDA on a per share basis. This was due to a number of redemptions in 2016 that resulted in significant gains and successful conclusions to three of the Corporation’s partnerships as well as not recording distributions for Kimco, SCR and Group SM in the current quarter. The redemptions meant lost revenue in the quarter from Solowave of $1.72 million, Mid-Atlantic of $0.68 million and LifeMark of $0.73 million for a total of $3.13 million. Revenue from Kimco and SCR was $3.16 million combined in Q1 of 2016 and nil in the current quarter. Revenue from Group SM was $1.6 million in Q1 of 2016 and nil in the current quarter as the Corporation has taken the position to only record Group SM revenue as received in 2017 though it expects to collect all that is contractually owed in 2017 (which is $1.6 million in Q1 2017). These losses in revenue were partially offset by new revenues of $3.38 million from Sandbox, Providence, Matisia and ccComm as well as new revenue from follow on contributions to LMS and Federal Resources and positive annual distribution resets for DNT, Planet Fitness, Federal Resources and Labstat. The net result was a $3.6 million decrease (15%) in revenue in the current quarter to $20.9 million compared to the prior year period total of $24.6 million (which included $1.6 million in revenue accrued for SM and $1.7 million in revenue accrued for Kimco).
The Corporation recorded earnings of $11.8 million, EBITDA of $16.5 million and Normalized EBITDA of $18.1 million for the three months ended March 31, 2017 compared to earnings of $20.8 million, EBITDA of $27.8 million and Normalized EBITDA of $21.1 million for the three months ended March 31, 2017. During the past twelve months, the Corporation added four new Partners: Sandbox (March 2016), Providence (April 2016), Matisia (September 2016) and ccComm (January 2017); completed follow on investments to two partners; and experienced positive resets in four of our largest Partners. These were offset by the redemptions for LifeMark (March 2016), Solowave (September 2016) and MAHC (December 2016) and no distributions from Kimco, Group SM and SCR in 2017. The primary driver of the decrease in earnings in the current quarter was due to Alaris realizing a significant and extraordinary gain in the prior year period on the LifeMark redemption ($18.6 million in the first quarter of 2016) which increased earnings and EBITDA significantly in the prior year period.
| Reconciliation of Net Income to EBITDA | Three Months | Three Months | ||||
| (thousands) | Ended March 31, | Ended March 31, | ||||
| 2017 | 2016 | |||||
| Earnings | $ | 11,849 | $ | 20,842 | ||
| Adjustments to Net Income: | ||||||
| Amortization and depreciation | 67 | 69 | ||||
| Finance costs | 2,014 | 1,517 | ||||
| Income tax expense | 2,631 | 5,330 | ||||
| EBITDA | 16,561 | 27,758 | ||||
| Normalizing Adjustments | ||||||
| Gain on disposal of investment | – | (18,566 | ) | |||
| Foreign exchange loss/(gain) | 1,583 | 11,955 | ||||
| Normalized EBITDA | $ | 18,144 | $ | 21,147 | ||
“We are pleased to be reporting a quarter with another new partner and top of the collar resets effective January 1, 2017 on several of our largest Partners in DNT, Federal Resources, Planet Fitness and Labstat as well as continued positive results from the majority of our other Partners. Additionally, we are pleased with the measurable progress made with Group SM, KMH, SCR and Agility and increasingly positive monthly results out of Kimco”, said Darren Driscoll, Chief Financial Officer.
Outlook
Based on Alaris’ current agreements with its partners, it expects revenues of approximately $85.8 million for 2017 (no revenue accrued for Kimco, $100,000 per month for SCR starting July 2017, and $200,000 per month for Group SM starting June 2017). Under those same assumptions, for the second quarter of 2017 those same agreements provide for revenues of approximately $21.2 million for the Corporation. Annual general and administrative expenses are currently estimated at $8.3 million annually and include all public company costs.
While Alaris continues to be disciplined in its capital deployment in an overheated marketplace, the company does expect to deploy capital in the current quarter based on transactions that are in progress.
The Corporation’s Annualized Payout Ratio is approximately 97% including partial distributions from Group SM and no distributions from Kimco and SCR. The table below sets out our estimated current run rate of net cash from operating activities alongside the after-tax impact of the various resolutions management is working toward:
| Annualized Cash Flow (in 000’s) | Comments | Amount ($) | $ / Share | ||
| Revenue | $1.32 USD/CAD exchange rate | $ 85,800 | $ 2.35 | ||
| General & Admin. | (8,300 | ) | (0.23 | ) | |
| Interest & Taxes | (16,500 | ) | (0.45 | ) | |
| Net cash flow | $ 61,000 | 1.67 | |||
| Annual Dividend | 59,000 | 1.62 | |||
| Surplus | $ 2,000 | 0.05 | |||
| Other Considerations (after taxes and interest): | |||||
| KMH | Receive $26.9 million for units reduces interest expense | +1,250 | +0.03 | ||
| SCR | Receive $100K per month starting July 2017 | +900 | +0.02 | ||
| SM | Full distributions & receive $28 million of proceeds | +3,600 | +0.10 | ||
| SCR & Kimco | Every $2 million in distributions received is $0.05/share | +1,600 | +0.05 | ||
| New Investments | Every $20 million deployed @ 15% | +1,515 | +0.04 | ||
| Sequel Roll | Partial Redemption (1) | -5,000 | -0.14 | ||
1 Sequel is ex pected to pay a cash distribution of US$30 million to the Corporation w ith Alaris retaining US$62 million inv ested in return for annual distributions of US$6.2 million. For more information, refer to the “Our Current Partners” section of Alaris’ Annual Information Form, dated March 31, 2017.
The Consolidated Statement of Financial Position, Statement of Comprehensive Income, and Statement of Cash Flows are attached to this news release. Alaris’ financial statements and MD&A are available on SEDAR at www.sedar.com and on our website at www.alarisroyalty.com.
Conference Call Details and Reminder of AGM to be held on May 9, 2017
Alaris management will host a conference call at 9am MST (11am EST), Tuesday, May 9, 2017 to discuss the financial results for the three months ended March 31, 2017 and the outlook for the Corporation.
Participants can access the conference call by dialing toll free 1-800-273-9672 (or 1-416-340-2216). Alternatively, to listen to this event online, please enter http://www.gowebcasting.com/8456 in to your web browser and follow the prompts given. Please connect to the call or log into the webcast at least 10 minutes prior to the beginning of the event.
For those unable to participate in the conference call at the scheduled time, it will be archived for replay until 11:59am EST May 16, 2017. You can access the replay by dialing toll free 1-800-408-3053 (or 1-905-694-9451) and entering the passcode 7821379. The webcast will be archived for 90 days and is available for replay by using the same link as above or by clicking on the link we’ll have stored under the “Investor” section. “Presentation and Events”, on our website.
Alaris will be holding its Annual General and Special Meeting of Shareholders on May 9, 2017 at 2:30pm MST in Calgary at the Hotel Le Germain, 899 Centre Street SW. Materials for the meeting have been mailed to shareholders of record on April 4, 2017 and copies are available under the Corporation’s profile on SEDAR at www.sedar.com or on the Corporation’s website under the “Investors” section at www.alarisroyalty.com.
An updated corporate presentation will be available on the Corporation’s website within the next 24 hours.
About the Corporation:
Alaris provides alternative financing to private companies (“Partners”) in exchange for royalties or distributions with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. Distributions from the Partners are adjusted annually based on the percentage change of a “top-line” financial performance measure such as gross margin or same store sales and rank in priority to the owner’s common equity position.
Non-IFRS Measures
The terms EBITDA, Normalized EBITDA and Annualized Payout Ratio are financial measures used in this news release that are not standard measures under International Financial Reporting Standards (“IFRS“). The Corporation’s method of calculating EBITDA, Normalized EBITDA and Annualized Payout ratio may differ from the methods used by other issuers. Therefore, the Corporation’s EBITDA, Normalized EBITDA and Annualized Payout Ratio may not be comparable to similar measures presented by other issuers.
Annualized Payout Ratio: Annualized payout ratio refers to Alaris’ total annualized dividend per share expected to be paid over the next twelve months divided by the estimated net cash from operating activities per share Alaris expects to generate over the same twelve-month period (after giving effect to the impact of all information disclosed as of the date of this report).
EBITDA refers to net earnings (loss) determined in accordance with IFRS, before depreciation and amortization, net of gain or loss on disposal of capital assets, interest expense and income tax expense. EBITDA is used by management and many investors to determine the ability of an issuer to generate cash from operations. Management believes EBITDA is a useful supplemental measure from which to determine the Corporation’s ability to generate cash available for debt service, working capital, capital expenditures, income taxes and dividends. The Corporation has provided a reconciliation of net income to EBITDA in this news release.
Normalized EBITDA refers to EBITDA excluding items that are non-recurring in nature and is calculated by adjusting for non-recurring expenses and gains to EBITDA. Management deems non-recurring items to be unusual and/or infrequent items that the Corporation incurs outside of its common day-to-day operations. For the three months ended March 31, 2017 and 2016, the gain on the redemption of the LifeMark units, and the unrealized foreign exchange gains and losses are considered by management to be non-recurring charges. Adjusting for these non-recurring items allows management to assess EBITDA from ongoing operations.
The terms EBITDA and Normalized EBITDA should only be used in conjunction with the Corporation’s annual audited and quarterly reviewed financial statements, excerpts of which are available below, while complete versions are available on SEDAR at www.sedar.com.
Forward-Looking Statements
This news release contains forward-looking statements under applicable securities laws. Statements other than statements of historical fact contained in this news release are forward-looking statements, including, without limitation, management’s expectations, intentions and beliefs concerning the growth, results of operations, performance of the Corporation and the Private Company Partners, the future financial position or results of the Corporation, business strategy, and plans and objectives of or involving the Corporation or the Partners. Many of these statements can be identified by looking for words such as “believe”, “expects”, “will”, “intends”, “projects”, “anticipates”, “estimates”, “continues” or similar words or the negative thereof. In particular, this news release contains forward-looking statements regarding the anticipated financial and operating performance of the Partners in 2017, the revenues/contractual distributions to be received by Alaris in 2017 (annually and quarterly), the Annualized Payout Ratio, its general and administrative expenses in 2017, the cash requirements of the Corporation in 2017, expected capital deployment in Q2 2017, timing for collection of deferred or unpaid distributions, and restarting of distributions from certain Partners. To the extent any forward-looking statements herein constitute a financial outlook, they were approved by management as of the date hereof and have been included to provide an understanding with respect to Alaris’ financial performance and are subject to the same risks and assumptions disclosed herein. There can be no assurance that the plans, intentions or expectations upon which these forward looking statements are based will occur.
By their nature, forward-looking statements require Alaris to make assumptions and are subject to inherent risks and uncertainties. Assumptions about the performance of the Canadian and U.S. economies in 2017 and how that will affect Alaris’ business and that of its Partners are material factors considered by Alaris management when setting the outlook for Alaris. Key assumptions include, but are not limited to, assumptions that the Canadian and U.S. economies will grow moderately in 2017, that interest rates will not rise in a material way over the next 12 to 24 months, that the Partners will continue to make distributions to Alaris as and when required, that the businesses of the Partners will continue to grow, that the Corporation will experience net positive resets to its annual royalties and distributions from its Partners in 2017, more private companies will require access to alternative sources of capital, and that Alaris will have the ability to raise required equity and/or debt financing on acceptable terms. Management of Alaris has also assumed that capital markets will remain stable and that the Canadian and U.S. dollar trading pair will remain in a range of approximately plus or minus 10% over the next 6 months. In determining expectations for economic growth, management of Alaris primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies.
There can be no assurance that the assumptions, plans, intentions or expectations upon which these forward-looking statements are based will occur. Forward-looking statements are subject to risks, uncertainties and assumptions and should not be read as guarantees or assurances of future performance. The actual results of the Corporation and the Partners could materially differ from those anticipated in the forward-looking statements contained herein as a result of certain risk factors, including, but not limited to, the following: the dependence of Alaris on the Partners; reliance on key personnel; general economic conditions; failure to complete or realize the anticipated benefit of Alaris’ financing arrangements with the Partners; a failure to obtain required regulatory approvals on a timely basis or at all; changes in legislation and regulations and the interpretations thereof; risks relating to the Partners and their businesses, including, without limitation, a material change in the operations of a Partner or the industries they operate in; inability to close additional Partner contributions in a timely fashion, or at all; a change in the ability of the Partners to continue to pay Alaris’ preferred distributions; a change in the unaudited information provided to the Corporation; and a failure to realize the benefits of any concessions or relief measures provided by Alaris to any Partner. Additional risks that may cause actual results to vary from those indicated are discussed under the heading “Risk Factors” and “Forward Looking Statements” in the Corporation’s Management Discussion and Analysis for the year ended December 31, 2016, which is filed under the Corporation’s profile at www.sedar.com and on its website at www.alarisroyalty.com. Accordingly, readers are cautioned not to place undue reliance on any forward-looking information contained in this news release. Statements containing forward-looking information reflect management’s current beliefs and assumptions based on information in its possession on the date of this news release. Although management believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.
Alaris Royalty Corp.
Condensed consolidated statement of financial position (unaudited)
As at March 31
| 31-Mar | 31-Dec | |||||
| 2017 | 2016 | |||||
| Assets | ||||||
| Cash and cash equivalents | $ | 19,536,409 | $ | 29,490,843 | ||
| Prepayments | 1,476,765 | 2,097,070 | ||||
| Foreign exchange contracts | 181,863 | – | ||||
| Trade and other receivables | 16,799,412 | 16,762,204 | ||||
| Investment tax credit receivable | 2,962,070 | 3,653,719 | ||||
| Promissory notes receivable | 26,922,445 | 21,922,445 | ||||
| Current Assets | 67,878,964 | 73,926,281 | ||||
| Promissory notes and other receivables | 7,844,367 | 7,891,312 | ||||
| Deposits | 16,324,033 | 16,255,771 | ||||
| Equipment | 627,133 | 647,445 | ||||
| Intangible assets | 6,183,722 | 6,206,456 | ||||
| Investments at fair value | 680,685,841 | 681,093,370 | ||||
| Investment tax credit receivable | 597,452 | 1,200,604 | ||||
| Non-current assets | 712,262,548 | 713,294,958 | ||||
| Total Assets | $ | 780,141,512 | $ | 787,221,239 | ||
| Liabilities | ||||||
| Accounts payable and accrued liabilities | $ | 2,307,309 | $ | 3,057,457 | ||
| Dividends payable | 4,919,959 | 4,905,368 | ||||
| Foreign exchange contracts | – | 712,349 | ||||
| Income tax payable | 2,340,897 | 2,007,244 | ||||
| Current Liabilities | 9,568,165 | 10,682,418 | ||||
| Deferred income taxes | 21,760,450 | 22,457,580 | ||||
| Loans and borrowings | 98,619,798 | 99,382,999 | ||||
| Non-current liabilities | 120,380,248 | 121,840,579 | ||||
| Total Liabilities | $ | 129,948,413 | $ | 132,522,997 | ||
| Equity | ||||||
| Share capital | $ | 620,132,983 | $ | 617,892,818 | ||
| Equity reserve | 10,229,325 | 11,628,364 | ||||
| Fair value reserve | (27,930,940 | ) | (27,930,940 | ) | ||
| Translation reserve | 20,593,671 | 23,029,120 | ||||
| Retained earnings | 27,168,060 | 30,078,880 | ||||
| Total Equity | $ | 650,193,099 | $ | 654,698,242 | ||
| Total Liabilities and Equity | $ | 780,141,512 | $ | 787,221,239 | ||
Alaris Royalty Corp.
Condensed consolidated statement of comprehensive income / loss (unaudited)
For the period ended March 31
| Three ended March 31st | ||||||
| 2017 | 2016 | |||||
| Revenues | ||||||
| Royalties and distributions | $ | 20,390,791 | $ | 24,252,610 | ||
| Interest and other | 489,843 | 313,370 | ||||
| Total Revenue | 20,880,634 | 24,565,980 | ||||
| Other income | ||||||
| Gain on partner redemption | – | 18,565,507 | ||||
| Realized gain/(loss) on foreign exchange contracts | (349,365 | ) | (1,340,278 | ) | ||
| Total Other income / (loss) | (349,365 | ) | 17,225,229 | |||
| Salaries and benefits | 636,351 | 565,247 | ||||
| Corporate and office | 721,220 | 945,976 | ||||
| Legal and accounting fees | 538,376 | 806,992 | ||||
| Non-cash stock-based compensation | 841,126 | 1,100,517 | ||||
| Depreciation and amortization | 66,747 | 69,061 | ||||
| Total Operating Expenses | 2,803,820 | 3,487,793 | ||||
| Earnings before the undernoted | 17,727,449 | 38,303,416 | ||||
| Finance costs | 2,014,096 | 1,516,730 | ||||
| Unrealized (gain)/loss on foreign exchange contracts | (894,212 | ) | (3,870,701 | ) | ||
| Unrealized foreign exchange loss/(gain) | 2,127,744 | 14,485,640 | ||||
| Earnings before taxes | 14,479,821 | 26,171,747 | ||||
| Current income tax expense | 1,829,459 | 1,011,012 | ||||
| Deferred income tax expense | 801,306 | 4,319,067 | ||||
| Total income tax expense | 2,630,765 | 5,330,079 | ||||
| Earnings | 11,849,056 | 20,841,668 | ||||
| Other comprehensive income | ||||||
| Transfer on redemption of investments at fair value | – | (18,686,309 | ) | |||
| Tax effect of items in other comprehensive income | – | 2,491,244 | ||||
| Foreign currency translation differences | (2,435,449 | ) | (11,504,299 | ) | ||
| Other comprehensive (loss) for the period, net of income tax | (2,435,449 | ) | (27,699,364 | ) | ||
| Total comprehensive income / (loss) for the period | 9,413,607 | (6,857,696 | ) | |||
| Earnings per share | ||||||
| Basic earnings per share | $ | 0.33 | $ | 0.57 | ||
| Fully diluted earnings per share | $ | 0.32 | $ | 0.57 | ||
| Weighted average shares outstanding | ||||||
| Basic | 36,450,803 | 36,302,736 | ||||
| Fully Diluted | 36,784,103 | 36,657,979 | ||||
Alaris Royalty Corp.
Condensed consolidated statement of cash flows (unaudited)
For the period ended March 31
| 2017 | 2016 | |||||
| Cash flows from operating activities | ||||||
| Earnings from the period | $ | 11,849,056 | $ | 20,841,668 | ||
| Adjustments for: | ||||||
| Finance costs | 2,014,096 | 1,516,730 | ||||
| Deferred income tax expense | 801,306 | 4,319,067 | ||||
| Depreciation and amortization | 66,747 | 69,061 | ||||
| Bad debt expense | – | – | ||||
| Impairment of preferred units | – | – | ||||
| Gain on partner redemption | – | (18,565,507 | ) | |||
| Unrealized gain on foreign exchange contracts | (894,212 | ) | (3,870,701 | ) | ||
| Unrealized foreign exchange loss | 2,127,744 | 14,485,640 | ||||
| Non-cash stock-based compensation | 841,126 | 1,100,517 | ||||
| $ | 16,805,863 | $ | 19,896,475 | |||
| Change in: | ||||||
| – trade and other receivables | 9,737 | (7,119,573 | ) | |||
| – income tax receivable / payable | 333,653 | – | ||||
| – prepayments | 620,305 | 768,936 | ||||
| – accounts payable and accrued liabilities | (750,148 | ) | 2,066,935 | |||
| Cash generated from operating activities | 17,019,410 | 15,612,773 | ||||
| Finance costs | (2,014,096 | ) | (1,516,730 | ) | ||
| Net cash from operating activities | $ | 15,005,314 | $ | 14,096,043 | ||
| Cash flows from investing activities | ||||||
| Acquisition of equipment | $ | (23,701 | ) | $ | (26,010 | ) |
| Acquisition of preferred units | (5,374,671 | ) | (37,450,626 | ) | ||
| Proceeds from partner redemptions | 500,000 | 38,396,400 | ||||
| Promissory notes issued | (5,000,000 | ) | (2,500,000 | ) | ||
| Promissory notes repaid | – | 312,500 | ||||
| Net cash used in investing activities | $ | (9,898,372 | ) | $ | (1,267,736 | ) |
| Cash flows from financing activities | ||||||
| Repayment of debt | $ | – | $ | (22,000,000 | ) | |
| Proceeds from debt | – | 61,461,800 | ||||
| Dividends paid | (14,745,284 | ) | (14,702,608 | ) | ||
| Deposits with CRA | (68,262 | ) | (1,323,637 | ) | ||
| Net cash from / (used in) financing activities | $ | (14,813,546 | ) | $ | 23,435,555 | |
| Net increase / (decrease) in cash and cash equivalents | $ | (9,706,604 | ) | $ | 36,263,862 | |
| Impact of foreign exchange on cash balances | (247,830 | ) | (1,684,932 | ) | ||
| Cash and cash equivalents, Beginning of period | 29,490,843 | 20,990,702 | ||||
| Cash and cash equivalents, End of period | $ | 19,536,409 | $ | 55,569,632 | ||
Curtis Krawetz
Vice President, Investments and Investor Relations
403-221-7305
