Alaris Royalty Corp. Releases Q2 2017 Financial Results

NOT FOR DISTRIBUTION IN THE UNITED STATES. 
FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF
UNITED STATES SECURITIES LAW.

CALGARY, Alberta, July 25, 2017 (GLOBE NEWSWIRE) -- Alaris Royalty Corp. (“Alaris” or the "Corporation") (TSX:AD) is pleased to announce its results for the three and six months ended June 30, 2017. The results are prepared under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Highlights:

  • Added a new Partner in June with a USD$20.0 million contribution to Accscient, LLC (“Accscient”) for annual distributions of USD$3.0 million;
  • Redeemed all of the preferred units in KMH and a $3.5 million unsecured promissory note in exchange for $9.8 million in cash and a $20.7 million note with formal security and preference on liquidity of certain assets;
  • Positive developments across the portfolio with the confirmation of several top of the collar resets, generally improving financial results out of those Partners that are not currently paying 100% of the distributions owed and the commencement of partial distributions from two Partners;
  • Increased net cash from operating activities by 20.6% on a per share basis due to reduced corporate costs, legal and accounting fees, and a lower realized foreign exchange loss on forward contracts; and
  • Recorded revenue from Partners of $22.8 million, $0.62 per share, up from the first quarter of 2017 ($20.9 million, $0.57 per share); and
  • Recorded Normalized EBITDA of $19.1 million, $0.52 per share, up from the first quarter of 2017 ($18.1 million, $0.50 per share).
        
Per Share Results Three Months Ended - June 30th Six Months Ended - June 30th
  20172016% Change 20172016% Change
Revenue per share $0.62$0.69-10.1% $1.20$1.36-11.8%
Normalized EBITDA per share $0.52$0.56-7.1% $1.02$1.15-11.3%
Net cash from operating activities per share $0.41$0.34+20.6% $0.82$0.73+12.3%
Dividends per share $0.405$0.405+0.0% $0.810$0.810+0.0%
Basic earnings per share $0.29$0.19+52.6% $0.62$0.77-19.5%
Fully diluted earnings per share $0.29$0.19+52.6% $0.61$0.76-19.7%
Weighted average basic shares outstanding (000’s) 36,48336,309  36,46736,306 
         
1Using the weighted average shares outstanding for the period.

The three months ended June 30, 2017 saw decreases in both revenue and normalized EBITDA on a per share basis compared to the prior year period due to: (i) redemptions in 2016 that resulted in significant gains and successful conclusions to two of the Corporation’s partnerships; (ii) partial distributions in the current quarter for Group SM, and; (iii) not recording distributions for Kimco and SCR in the current quarter. The redemptions meant lost revenue in the quarter from Solowave of $1.72 million, and MAHC of $0.65 million for a total of $2.36 million. Revenue from Kimco and SCR was $2.67 million combined in Q2 of 2016 and nil in the current quarter. Revenue from Group SM was $1.59 million in Q2 of 2016 and $0.35 million in the current quarter as the Corporation has taken the position to only record Group SM revenue as received in 2017 ($50,000 weekly beginning in May 2017) though it intends to collect all that is contractually owed in 2017 (which is $1.6 million in Q2 2017). These losses in revenue were partially offset by new revenues of $0.83 million from Matisia, ccComm and Accscient 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 $3.08 million decrease (12.5%) in revenue in the current quarter to $21.45 million compared to the prior year period total of $24.53 million (which included $1.59 million in revenue accrued for Group SM and $1.16 million in revenue accrued for Kimco). Compared to the first quarter of 2017, revenue was up 9.1% and Normalized EBITDA was up 5.5% due to positive resets from a number of Partners.

The Corporation recorded earnings of $10.7 million, EBITDA of $14.1 million and Normalized EBITDA of $19.1 million for the three months ended June 30, 2017 compared to earnings of $7.0 million, EBITDA of $11.4 million and Normalized EBITDA of $20.5 million for the three months ended June 30, 2016. The -6.8% decrease in Normalized EBITDA is a result of redemptions from LifeMark (March 2016), Solowave (September 2016) and MAHC (December 2016), and no distributions from Kimco and SCR in the first half of 2017, which was partially offset by the addition new Partners: Providence (April 2016), Matisia (September 2016), ccComm (January 2017) and Accscient (June 2017), as well as positive resets on distributions from four of our largest Partners. The primary driver of the increase in earnings was due to lower corporate & office and legal & accounting expenses in the current period while the comparable period included a $7 million permanent impairment of the KMH units. This was partially offset by lower distributions for the three months ended June 30, 2017.

Reconciliation of Net Income to
EBITDA (thousands)
Three months ended
June 30
 Six months ended
June 30

  2017 2016   2017 2016 
Earnings $  10,656 $  7,043   $  22,507 $  27,885  
Adjustments to Net Income:           
Amortization and depreciation 67 69   134 138 
Finance costs 1,070 1,359   3,084 2,876 
Income tax expense 2,334 2,976   4,965 8,306 
EBITDA   14,127    11,447      30,690    39,205  
Normalizing Adjustments    
Gain on disposal of investment - (23)  - (18,588)
Foreign exchange loss/(gain) 3,469 534   5,051 12,489 
Impairment and other charges 1,474 7,000   1,474 7,000 
Bad Debt Expense - 853   - 853 
Penalties & Fees - 656   - 656 
Normalized EBITDA$  19,070 $  20,468   $  37,215 $  41,615  

“Alaris experienced meaningful improvements over the year’s first quarter with revenue up 9% and EBITDA up over 5% as top of the collar resets materialized alongside continued improvements across the business. Add to that a new Partner in late June and the long awaited resolution on KMH and the Corporation is well positioned for a strong second half of 2017”, said Darren Driscoll, Chief Financial Officer.

Outlook

Based on Alaris’ current agreements with its partners, it expects revenues of approximately $90.0 million for 2017 (no revenue is being accrued for Kimco and only partial distributions are being estimated for SCR and Group SM).  Under those same assumptions, for the third quarter of 2017 Alaris expects revenues of approximately $23.4 million. Annual general and administrative expenses are currently estimated at $8.3 million annually and include all public company costs. The Corporation’s Annualized Payout Ratio is now under 90%.

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.  An updated corporate presentation will also be available on our website within 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 and six months ended June 30, 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, 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 June 30
    
  30-Jun 31-Dec
   2017   2016 
Assets   
Cash and cash equivalents $15,182,452  $29,490,843 
Prepayments  1,476,765   2,097,070 
Foreign exchange contracts    1,192,441     -  
Trade and other receivables  16,735,610   16,762,204 
Income tax receivable  1,294,798     -  
Investment tax credit receivable  3,000,000   3,653,719 
Promissory notes receivable  43,822,445   21,922,445 
Current Assets  82,704,511   73,926,281 
Promissory notes and other receivables  13,631,243   7,891,312 
Deposits  16,324,033   16,255,771 
Equipment  591,291   647,445 
Intangible assets  6,160,987   6,206,456 
Investments at fair value  670,740,795   681,093,370 
Deferred income taxes  1,921,373     -  
Investment tax credit receivable  747,512   1,200,604 
Non-current assets  710,117,234   713,294,958 
Total Assets $ 792,821,745   $ 787,221,239  
    
Liabilities   
Accounts payable and accrued liabilities $2,730,891  $3,057,457 
Dividends payable  4,919,959   4,905,368 
Foreign exchange contracts    -      712,349 
Income tax payable    2,180,884   2,007,244 
Current Liabilities  9,831,734   10,682,418 
Deferred income taxes  24,093,107   22,457,580 
Loans and borrowings  113,956,998   99,382,999 
Non-current liabilities  138,050,105   121,840,579 
Total Liabilities $ 147,881,839   $ 132,522,997  
    
Equity   
Share capital $620,132,983  $617,892,818 
Equity reserve  11,114,785   11,628,364 
Fair value reserve  (24,480,041)  (27,930,940)
Translation reserve  15,105,896   23,029,120 
Retained earnings  23,066,283   30,078,880 
Total Equity $ 644,939,906   $ 654,698,242  
    
Total Liabilities and Equity $ 792,821,745   $ 787,221,239  


Alaris Royalty Corp.
Condensed consolidated statement of comprehensive income / loss (unaudited)
For the six month period ended June 30
       
  Three months ended June 30Six months ended June 30
  20172016 20172016
Revenues      
Royalties and distributions $21,752,044 $24,527,403  $42,142,835 $48,780,013 
Interest and other  1,026,647  385,586   1,521,530  698,958 
Total Revenue  22,778,691  24,912,989   43,664,365  49,478,971 
       
Other income / expense      
Gain on partner redemption  -  22,500   -  18,588,007 
Realized gain / (loss) on foreign exchange contracts  (130,339) (722,052)  (479,704) (2,062,331)
Total Other income / expense  (130,339) (699,552)  (479,704) 16,525,676 
       
Salaries and benefits  1,439,553  1,572,545   2,075,904  2,137,794 
Corporate and office  1,044,020  1,271,615   1,768,781  2,217,668 
Legal and accounting fees  339,506  485,813   877,882  1,292,752 
Non-cash stock-based compensation  885,462  1,771,112   1,726,587  2,871,628 
Bad debt expense  -  853,122   -  853,122 
Impairment and other charges  1,473,922  7,000,000   1,473,922  7,000,000 
Depreciation and amortization  67,176  69,119   133,924  138,181 
Total Operating Expenses  5,249,639  13,023,326   8,057,000  16,511,145 
Earnings before the undernoted    17,398,713     11,190,111      35,127,661     49,493,502  
Finance costs  1,069,776  1,358,909   3,083,872  2,875,638 
Unrealized (gain)/loss on foreign exchange contracts  (1,010,526) (523,066)  (1,904,962) (4,393,768)
Unrealized foreign exchange (gain) / loss  4,348,936  335,044   6,476,680  14,820,684 
Earnings before taxes    12,990,527    10,019,224     27,472,071    36,190,948 
Current income tax expense / (recovery)  2,186,804  (69,723)  4,016,264  941,244 
Deferred income tax expense  147,347  3,046,036   948,652  7,365,104 
Total income tax expense  2,334,151  2,976,313   4,964,916  8,306,348 
Earnings    10,656,376     7,042,911      22,507,155     27,884,600  
       
Other comprehensive income      
Transfer on redemption of investments at fair value  -  -   -  (18,686,309)
Net change in fair value of investments at fair value  3,975,000  (664,685)  3,975,000  (664,685)
Tax effect of items in other comprehensive income  (524,101) (90,794)  (524,101) 2,400,450 
Foreign currency translation differences  (5,487,775) (266,687)  (7,923,224) (11,770,986)
Other comprehensive (loss) for the period, net of income tax  (2,036,876) (1,022,166)  (4,472,325) (28,721,530)
Total comprehensive income / (loss) for the period    8,619,500     6,020,745      18,034,830     (836,930)
       
Earnings per share      
Basic earnings per share $0.29 $0.19  $0.62 $0.77 
Fully diluted earnings per share $0.29 $0.19  $0.61 $0.76 
Weighted average shares outstanding      
Basic  36,483,426  36,309,317   36,467,025  36,306,026 
Fully Diluted  36,785,090  36,817,179   36,768,689  36,730,479 


Alaris Royalty Corp.
Condensed consolidated statement of cash flows (unaudited)
For the six month period ended June 30
    
  20172016
Cash flows from operating activities   
Earnings from the period $22,507,155 $27,884,600 
Adjustments for:   
Finance costs  3,083,872  2,875,638 
Deferred income tax expense  948,652  7,365,104 
Depreciation and amortization  133,924  138,181 
Bad debt expense  -  853,122 
Impairment and other charges  1,473,922  7,000,000 
Gain on partner redemption  -  (18,588,007)
Unrealized gain on foreign exchange contracts  (1,904,962) (4,393,768)
Unrealized foreign exchange loss  6,476,680  14,820,684 
Non-cash stock-based compensation  1,726,587  2,871,628 
  $34,445,830 $40,827,182 
Change in:   
- trade and other receivables  26,594  (6,133,863)
- income tax receivable / payable  (1,699,468) (4,502,808)
- prepayments  620,305  768,936 
- accounts payable and accrued liabilities  (326,566) (1,704,981)
Cash generated from operating activities  33,066,695  29,254,466 
Finance costs  (3,083,872) (2,875,638)
Net cash from operating activities $29,982,823 $26,378,828 
    
Cash flows from investing activities   
Acquisition of equipment $(32,302)$(27,551)
Acquisition of preferred units  (31,832,335) (83,386,831)
Proceeds from partner redemptions  12,498,877  38,517,202 
Promissory notes issued  (11,959,926) (6,350,000)
Promissory notes repaid  -  312,500 
Net cash used in investing activities $(31,325,686)$(50,934,680)
    
Cash flows from financing activities   
Repayment of debt $- $(22,000,000)
Proceeds from debt  17,189,900  70,943,300 
Dividends paid  (29,505,160) (29,405,612)
Deposits with CRA  (68,262) (1,364,703)
Net cash from / (used in) financing activities $(12,383,522)$18,172,985 
    
Net increase / (decrease) in cash and cash equivalents $(13,726,385)$(6,382,867)
Impact of foreign exchange on cash balances  (582,006) (3,586,644)
Cash and cash equivalents, Beginning of period  29,490,843  20,990,702 
Cash and cash equivalents, End of period $15,182,452 $11,021,191 
    
Cash taxes paid $5,117,768 $4,130,100 
        
CONTACT: For more information please contact:

Curtis Krawetz
Vice President, Investments and Investor Relations
Alaris Royalty Corp.
403-221-7305 

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