CALGARY, ALBERTA--(Marketwired - June 25, 2015) -
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 that Alaris and its wholly owned subsidiary, Alaris USA Inc. ("Alaris USA") have collectively contributed US$47,000,000 (CAD$58,378,700) (the "FR Contribution") to Federal Resources Supply Company ("Federal Resources") in exchange for an annualized aggregate cash distribution of US$7,050,000 (CAD$8,756,805 at current exchange rates) in the first twelve months following closing of the FR Contribution. The Corporation is also pleased to announce that it will be increasing its monthly dividend per share to $0.135 from $0.130 (the "Dividend Increase"), which represents an annualized dividend of $1.62 ($1.56 previously), a 4% increase. This is Alaris' third dividend increase in the last twelve months for a total increase of 13% and tenth consecutive increase since April 2010. Alaris has also entered into an $87,596,000 bought deal financing (the "Offering") with Acumen Capital Finance Partners Limited ("Acumen") as sole lead underwriter and with Acumen and RBC Capital Markets Inc. ("RBC") as joint book runners, on behalf of a syndicate of underwriters. The net proceeds of the Offering will be used to reduce indebtedness under the Corporation's senior credit facility (the "Facility"), which was used to fund the FR Contribution as well as the US$70,000,000 (CAD$87,150,000) contribution to DNT Construction, LLC ("DNT"). The Corporation is also pleased to provide a corporate update regarding other Private Company Partners.
Pursuant to the agreements (the "FR Agreements") among Alaris, Alaris USA and Federal Resources, Alaris and Alaris USA collectively made the US$47,000,000 FR Contribution in exchange for an aggregate pre-tax annualized cash distribution of US$7,050,000 (the "FR Distribution"), which represents an expected initial pre-tax return of 15.0%. Commencing on January 1, 2017, the FR Distribution will be adjusted annually based on the percentage change in gross revenue over the most recently completed 12 month period versus the prior 12 month period, subject to a collar of 6%. Federal Resources used the proceeds from the FR Contribution to complete a management buyout of an existing equity sponsor as well as for the partial monetization of other minority shareholders.
Based on Alaris' review of Federal Resources audited results for the fiscal year ended December 31, 2014 as well as for the unaudited internal proforma results for the trailing twelve months period ended April 30, 2015, management of Alaris believes that Federal Resources would have an earnings coverage ratio in the range of approximately 1.0x to 1.5x, respectively, for such periods with the most recent period being at the higher end of the range, after giving effect to the FR Contribution, Federal Resources new debt facilities and the FR Distribution payable to Alaris.
Federal Resources is a Maryland based leading value-added provider of mission critical products and solutions to defense, first responder, homeland security and maritime end users. Federal Resources is a leading provider of detection and protection equipment to first line responders dealing with chemical, biological, radiological, nuclear and explosive ("CBRNE") threats, as well as supplying tactical gear, tools and maritime products. Federal Resources management believes that the CBRNE product category is one of the highest growth product categories in the defense procurement budget with potential CBRNE attacks representing the most widely anticipated global threat for the next 10 years. Federal Resources was founded in 1986 and employs 150 people.
"One of the best uses of Alaris' capital is for a management team to buy out exiting shareholders such as a traditional equity sponsor. We couldn't be more pleased to be backing the successful young management team of Federal Resources who were significant owners ahead of this transaction and now control the company they are so passionate about. Their track record of growth and profitability is truly impressive. The barriers to entry in their market and the consistent demand from their customers also gives us confidence in the long term results of our investment," said Steve King, President and Chief Executive Officer, Alaris.
"We are grateful and excited about the opportunity. My team and I are looking forward to accomplishing great things during our partnership with Alaris," said Robbie McWilliams, Chief Executive Officer, Federal Resources.
The FR Distribution is expected to result in an after tax increase to Alaris' net cash from operating activities of approximately $0.13 per share (on an annualized basis based on the currently issued and outstanding shares and including the impact of funding the FR Contribution with debt drawn from the Facility). This expected increase in cash flow as well as Alaris' confidence in its other revenue streams has permitted the Corporation to increase the dividend. The Dividend Increase will be $0.06 per share annually taking the monthly dividend to $0.135 per share ($1.62 per share on an annualized basis), representing a 4% increase. The Dividend Increase is Alaris' third in the last twelve months for a total increase of 13% as well as its tenth consecutive dividend increase since April 2010. Alaris is estimating its payout ratio to remain less than 80% after the cumulative effects of today's announcement.
The first dividend for which this Dividend Increase is anticipated to apply is the dividend expected to be paid to shareholders of record on July 31, 2015 in August 2015 (the "July Dividend").
BOUGHT DEAL FINANCING
The Corporation has entered into an agreement with Acumen as the sole lead underwriter and Acumen and RBC as joint book runners, on behalf of a syndicate of underwriters (collectively, the "Underwriters"), in respect of the Offering, pursuant to which the Corporation will sell and the Underwriters will purchase, on a bought-deal basis, subject to regulatory approval, 2,872,000 common shares of the Corporation (the "Common Shares") at a price of $30.50 per Common Share for total gross proceeds of $87,596,000. The Corporation has also granted the Underwriters an over-allotment option (the "Over-Allotment Option") to purchase up to an additional 430,800 Common Shares at the same price and on the same terms as the Offering, exercisable in whole or in part, at any time, for a period of up to 30 days following closing of the Offering to cover over-allotments. Total gross proceeds will be $100,735,400 if the Over-Allotment Option is exercised in full.
The Corporation will use net proceeds of the Offering to reduce debt outstanding on its Facility. The Facility was recently utilized to contribute US$70,000,000 (CAD$87,150,000) to DNT as well as today's US$47,000,000 (CAD$58,378,700) FR Contribution. The Corporation is estimating to have a balance of $55,000,000 drawn on the Facility after closing of the Offering. Total Common Shares outstanding following the Offering will be 35,047,921. The first dividend which purchasers under the Offering will be entitled to receive is the July Dividend, provided they are the holder of record on July 31, 2015.
The Common Shares will be offered in each of the provinces of Canada, other than the province of Québec, by way of a short form prospectus. The Offering is expected to close on or about July 16, 2015 (the "Closing Date"). Completion of the Offering is subject to certain conditions, including, without limitation, the receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange.
Planet Fitness Follow-On
Alaris is pleased to announce that it is expecting to complete an additional US$5,000,000 contribution (the "Additional PF Contribution") to PF Growth Partners, LP ("PFGP") in exchange for an additional annualized distribution of US$710,000 (the "Additional PF Distribution"). PFGP has opened an additional 7 locations since partnering with Alaris in November of 2014 and has intentions to open several more locations in the second half of 2015. Alaris will continue to fund PFGP's growth when called upon. The Additional PF Contribution is expected to close on or around July 1, 2015 and will be funded with the Facility.
KMH Status Update
KMH and Alaris continue to evaluate strategic alternatives that include, but are not limited to, a full repurchase of Alaris' preferred units (the "KMH Units"), the rolling of all of Alaris' KMH Units into a strategic entity and a combination of a partial repurchase of the KMH Units and rolling the remaining KMH Units into a strategic entity. Alaris expects a conclusion to the process within the next 90 days and will provide an update when appropriate. Alaris will not be accruing any revenue from KMH in the second quarter of 2015 and does not expect to accrue any additional revenue until the process is complete.
Labstat Loan Repayments
The Corporation is pleased to announce that in addition to regularly scheduled 2015 cash distributions on Alaris' preferred units in Labstat, Labstat has repaid $3.2 million of the notes outstanding (the "Labstat Notes") which Alaris had previously provided and $1.3 million of accrued interest on the Labstat Notes. The remaining $3.7 million balance on the Labstat Notes is expected to be repaid in full from Labstat as cash flow permits. Alaris used the $4.5 million of proceeds from the partial repayment of the Labstat Notes to reduce the amount outstanding on its Facility.
Alaris has agreed to provide The S.M. Group International L.P. ("SMi") a $3,000,000 short-term note (the "SM Note"). SMi continues to grow rapidly from newly awarded contracts and as a result has continued to invest in the working capital required to fund the growing business. The SM Note is a short-term solution provided to fund near-term working capital requirements. The SM Note will carry an interest rate of 8% and is expected to be repaid within the next six months. Alaris expects to fund the SMi Note with cash on hand prior to June 30, 2015.
Changes in Business Development Executive
Stephen Reid, Senior VP, Business Development has announced his retirement from the Corporation effective June 30, 2015. Since 2004 when Alaris IGF was created, Mr. Reid has been overseeing Alaris' business development efforts in terms of increasing Alaris' presence among the advisory referral networks across North America.
"I would like to personally thank Stephen for his outstanding service and dedication to Alaris. As with any company that creates a unique business model, there are many ups and downs, particularly when we first started Alaris more than 11 years ago. It takes a special person to persist through it all and to keep working towards a goal. I wish Stephen nothing but the best in his new business interests," said Steve King, Alaris Royalty Corp.
In September 2014, Mr. Dan Bertram joined Alaris as VP Business Development to work in tandem with Mr. Reid on Alaris' business development efforts. Dan will now be joined by Mr. Devin Timberlake who has been hired to replace Mr. Reid. Devin will assume the role of VP Business Development effective July 1, 2015. Prior to joining Alaris, Devin served as an investment banking associate on the mergers and acquisition advisory team with a boutique advisory firm in Vancouver. Devin graduated from Brown University where he earned a degree in Business, Entrepreneurship and Organizations.
The Corporation provides alternative financing to a diversified group of private businesses ("Private Company Partners") in exchange for royalties or distributions from the Private Company Partners, with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. Royalties or distributions to Alaris from the Private Company Partners are structured as a percentage of a "top line" financial performance measure such as gross margin, same clinic sales, gross revenues and same-store sales and rank in priority to the owners' common equity position.
Non IFRS Measures
The terms "payout ratio" and "earnings coverage ratio" are financial measures used in this news release that are not a standard measure under International Financial Reporting Standards. The Corporation's method of calculating the payout ratio and earnings coverage ratio may differ from the methods used by other issuers. Therefore, the Corporation's payout ratio and earnings coverage ratio may not be comparable to similar measures presented by other issuers.
Payout ratio means Alaris' annualized dividend payable per share (after giving effect to the Dividend Increase) over the next twelve months divided by its expected net cash from operating activities over the next 12 months. The payout ratio should only be used in conjunction with the Corporation's annual audited and quarterly reviewed financial statements, which are available on SEDAR at www.sedar.com.
Earnings coverage ratio refers to EBITDA divided by the sum of debt servicing (interest and principal), maintenance capital expenditures and distributions to Alaris. Alaris uses this ratio to evaluate a Private Company Partner's ability to pay the distributions payable to Alaris. This ratio is intended to measure the number of times a Private Company Partner's fixed commitments can be covered by its earnings, and in Alaris' view it is indicative of a Private Company Partner's available margin of safety with respect to its ability to pay its commitments, including the distributions payable to Alaris. Alaris generally considers a ratio of 1.0 or higher to be sufficient to demonstrate a Private Company Partner's ability to pay the distributions payable to Alaris.
This news release contains forward-looking statements as defined under applicable securities laws. Statements other than statements of historical fact contained in this news release may be forward-looking statements under applicable securities legislation, including, without limitation, management's expectations, intentions and beliefs concerning: the amount of the FR Distribution and the Additional PF Distribution; the return to Alaris on the FR Contribution; the impact of the Offering, FR Contribution, Additional PF Contribution, the SMi Note, the Labstat loan repayment and Dividend Increase on revenues, net cash from operating activities and payout ratio; the Dividend Increase and the timing thereof; the use of proceeds of the Offering and the Closing Date; possible outcomes of the KMH strategic process; the indebtedness under the Facility; Alaris' cash position following the Offering; and the jurisdictions and method of Offering. 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. To the extent any forward-looking statements herein constitute a financial outlook, including, without limitation, the estimated increase in net cash from operating activities, revenues and payout ratio, 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 2015 and how that will affect Alaris' business and that of its Private Company 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 over the next 12 months, that interest rates will not rise in a material way over the next 12 to 24 months, that the Private Company Partners will continue to make distributions to Alaris as and when required, that the businesses of the Private Company Partners will continue to grow, what the Corporation expects to experience regarding resets to its annual royalties and distributions from its Private Company Partners in 2015, 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 dollar will remain in a range of approximately plus or minus 10% of par relative to the U.S. dollar. 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 Private Company 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 Private Company Partners; reliance on key personnel; general economic conditions; failure to complete or realize the anticipated benefit of Alaris' financing arrangements with the Private Company Partners; a failure to complete or realize the anticipated benefits of the FR Contribution, the Additional PF Contribution, the SMi Note, the Labstat repayment of notes and the Offering; a failure to obtain a positive resolution in respect to the KMH partnership; and/or its strategic review process; government regulations; a failure to obtain required regulatory approvals on a timely basis or at all; changes in legislation and regulations and the interpretations thereof; a material adjustment to the unaudited financial information of a Private Company Partner provided to Alaris; and risks relating to the Private Company Partners and their businesses, including, without limitation, a material change in the operations of a Private Company Partner or the industries they operate in and a change in the ability of the Private Company Partners to continue to pay Alaris' preferred distributions. Additional risks that may cause actual results to vary from those indicated are discussed under the heading "Risk Factors" in the Corporation's Annual Information Form for the year ended December 31, 2014, which is filed under the Corporation's profile at www.sedar.com.
Accordingly, readers are cautioned not to place undue reliance on any forward-looking information contained in this news release as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. 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 assumptions reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations will prove to be correct.
The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this news release are made as of the date of this news release and Alaris does not undertake or assume any obligation to update or revise such statements to reflect new events or circumstances except as expressly required by applicable securities legislation.
This press release does not constitute an offer of Common Shares for sale in the United States. The Common Shares have not been registered under the United States Securities Act of 1933, (the "1933 Act") as amended, and may not be offered or sold within the United States absent registration or an exemption from registration under the 1933 Act. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.
Vice President, Investments and Investor Relations