CALGARY, ALBERTA--(Marketwired - Nov. 9, 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 its results for the three and nine months ended September 30, 2015.
The Corporation is pleased to report another positive quarter due to the impact of adding three new Private Company Partners ("Partners") during the last twelve months along with net positive resets to the annual distributions from the fourteen Partners during 2015. Year to date, nine of those fourteen partners are trending toward another positive reset in 2016 (four are expected to hit the top end of the collar based on year to date results), while three are flat and two are trending toward a decrease (one expected to hit the bottom end of the collar). Overall, the Corporation expects a sixth straight year of net positive resets from its Partners.
"The original goal of Alaris was to create a safe and growing dividend stream. One of the key elements of that plan that has guided us successfully for twelve years is diversification. We are very pleased to be in a position now to continue to report positive increases in our portfolio despite the volatility that exists in all forms of equity investing. Over Alaris' history, there have been impressive wins and thankfully few losses. Given our investment process as well as our unique, low volatility structure, we have every expectation that our track record will continue in the future. This third quarter report gives further evidence of this track record and also shows our continuing success in working with partner companies that are going through challenges that are inevitable in businesses over the course of time," said Steve King, President and CEO, Alaris Royalty Corp.
Subsequent to September 30, 2015, the Corporation closed on a new $200 million credit facility with a syndicate of Canadian banks led by the Corporation's current lenders (previously $90.1 million). This new expanded facility will allow the Corporation to carry up to 1.5x EBITDA over a four year term keeping the remainder available for new transactions. The four year revolving facility has no amortization, and the annual fees and interest rates are lower (with the interest rate being 0.50% lower than the current facility). This facility leaves the Corporation with approximately $155 million of capacity for new accretive partnerships.
The results of the quarter are summarized in four key performance metrics compared to the prior year period on a per share basis (the Corporation used Normalized EBITDA rather than EBITDA to back out the non-cash foreign exchange gains and losses, a 2015 gain on the sale of Killick Aerospace Limited Partnership ("Killick"), bad debt expense and an investment impairment charge for KMH Limited Partnership ("KMH"):
|Per Share||Three months ending Sept 30||Nine months ending Sept 30|
|2015||2014||% Change||2015||2014||% Change|
|Net cash from operating activities (1)||$0.26||$0.39||-33.3||%||$0.98||$1.19||-17.6||%|
|Weighted average basic shares outstanding (000`s)||35,336||32,042||33,234||29,899|
|(1)||Net cash from operating activities on a per share basis decreased by 33.3% and 17.6% in the three and nine months ending September 30, 2015 due to $12.0 million in deposits paid to the CRA in period. Adding back the CRA deposit results in net cash from operating activities of $0.37 per share for the three month period (a 5.1% decrease) and $1.34 per share for the nine month period (a 12.6% increase).|
Gross revenue from private company partners ("Partners") increased by 27.3% and 19.4% for the three and nine months ending September 30, 2015, and on a per share basis revenue was up 16.1% for the three months ended September 30, 2015 and up 7.1% for the nine months ending September 30, 2015 when compared to the prior year period. New accretive partnerships in PF Growth Partners, LLC ("Planet Fitness") in November 2014, including a $5 million follow on contribution in July 2015, DNT Construction LLC ("DNT") and Federal Resources Supply Company ("Federal Resources") in June 2015, more than offset the fact that no revenue was accrued for KMH in the quarter as well as the Killick redemption in early 2015. New accretive partnerships and organic growth in current partners contributed to increases in revenue, Normalized EBITDA and dividends paid on a per share basis.
|3 months ending
|9 months ending
|Reconciliation of Earnings to EBITDA (thousands)||2015||2014||2015||2014|
|Adjustments to Earnings:|
|Income tax expense||2,386||4,730||10,389||7,420|
|Impairment of units||20,460||-||20,460||-|
|Unrealized foreign exchange loss/(gain)||(12,740||)||(4,135||)||(20,293||)||(3,953||)|
|Gain on disposition of Killick units||-||-||(2,792||)||-|
For the three and nine months ended September 30, 2015, the Corporation recorded earnings of $6.5 million and $37.3 million, EBITDA of $9.8 million and $50.2 million and Normalized EBITDA of $21.1 million and $51.1 million compared to earnings of $14.6 million and $35.5 million, EBITDA of $19.6 million and $45.2 million and Normalized EBITDA of $15.5 million and $41.3 million in the prior year periods. The decrease in earnings and the decrease in EBITDA for the three month period and only a $5.0 million increase in the nine month period can be attributed to the $3.6 million of unpaid distributions from KMH that were written off as well as a $20.5 million reduction in the fair value of KMH due to decreased expectations of value as KMH proceeds through its strategic review process. The increase in Normalized EBITDA can be attributed to the addition of three new Partners in the past twelve months as well as follow on contributions to four different Partners partially offset by the redemptions in November 2014 and January 2015 and a reduction of revenue from KMH. Expenses were as expected in the quarter.
"Overall the Partners are performing well and the third quarter results demonstrated that with a 16% increase in revenue per share and a 25% increase in Normalized EBITDA per share. A significant recent development was the $200 million credit facility which now gives us more than $150 million for future accretive transactions with new Partners," said Darren Driscoll, CFO, Alaris Royalty Corp.
At each quarter end, the Corporation reviews the fair value of the preferred units in each of the Partners. At September 30, 2015, there was only one change to the fair values of the Partners. Due to the length of the strategic process underway at KMH, the Corporation has further reduced its expectations of fair value to approximately $35 million. That results in a $15 million reduction in the current period, but because this is viewed as a permanent impairment, another $5.4 million is recorded in the quarter that relates to provisions made in prior periods. "While we're disappointed with the length of the KMH process, our expectation is that we receive cash at closing as well as some level of long term revenue stream from a strengthened Partner." said Mr. Driscoll.
Subsequent to September 30, 2015, the Corporation approved up to an additional $10 million loan to Group SM Limited Partnership ("SMi"). A combination of a capital injection, improvements to SMI's cost structure, the cessation of the majority of one-time legal costs as well as an expected improvement in credit capabilities is expected to improve SMI's cash flow position going forward thus no change to the fair value of the SMi units was required.
Monthly results for Kimco Holdings LLC ("Kimco") since July have been at or above budget and the Corporation has a term sheet in place with Kimco's senior lenders that we expect will allow for full distributions for the fourth quarter as well as a partial catch up of any distributions deferred in the third quarter thus no change to the fair value of the Kimco units was required. More information is provided in the Private Company Partner Update portion of the Corporation's Management's discussion and analysis for the period (a copy of which is available under Alaris' profile at www.sedar.com).
Alaris' agreements with its Partners provide for estimated revenues to Alaris of approximately $81.6 million for the 2015 fiscal year (no further distributions from KMH are included in this total). Revenues from our Partners for the three months ended December 31, 2015 are expected to be approximately $22.5 million (no further distributions from KMH are included in this total). Annual general and administrative expenses are currently estimated at $7.5 million annually and include all public company costs. Cash requirements after earnings are expected to remain at minimal levels. The Corporation's annualized payout ratio is at approximately 82% today without considering any revenue from KMH. The conclusion of the KMH strategic process will only improve that number which supports the continued strength and sustainability of the monthly dividend.
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.
Alaris management will host a conference call at 9am MST (11am EST), Tuesday, November 10, 2015 to discuss the financial results and outlook for the Corporation. Participants can access the conference call by dialing toll free 1-800-355-4959 (or 1-416-340-8527). Alternatively, to listen to this event online, please enter www.gowebcasting.com/6958 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 11am EST November 17, 2015. You can access the replay by dialing toll free 1-800-408-3053 (or 1-905-694-9451) and entering the passcode 7169447. 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 on our website at www.alarisroyalty.com. An updated corporate presentation will be available on our website in 24 hours.
About the Corporation:
Alaris provides alternative financing to the Partners in exchange for distributions with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. Distributions from the Partners are structured as a percentage of a "top line" financial performance measure such as gross margin and same-store sales and rank in priority to the owners' common equity position.
The terms EBITDA, Normalized EBITDA, Per Share values 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 Per Share values may differ from the methods used by other issuers. Therefore, the Corporation's EBITDA, Normalized EBITDA and Per Share values may not be comparable to similar measures presented by other issuers.
EBITDA refers to net earnings (loss) determined in accordance with IFRS, before depreciation and amortization, 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.
Normalized EBITDA refers to EBITDA excluding items that are non-recurring in nature. Management deems non-recurring charges to be unusual and/or infrequent charges that the Corporation incurs outside of its common day-to-day operations. For the three and nine months ended September 30, 2015, the gain on the redemption of the Killick units, bad debt expense impairment of investments, and the unrealized foreign exchange gains and losses gain are considered by management to be non-recurring charges. Adjusting for these non-recurring items allows management to assess EBITDA from ongoing operations.
Per Share values, other than earnings per share, refer to the related financial statement caption as defined under IFRS or related term as defined herein, divided by the weighted average basic shares outstanding for the period.
Annualized Payout Ratio: The term "annualized payout ratio" is a financial measure used in this news release that is not a standard measure under International Financial Reporting Standards. Annualized Payout Ratio means 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 today).
The Non-IFRS measures should only be used in conjunction with the Corporation's annual audited statements, excerpts of which are available below, while complete versions are available on SEDAR at www.sedar.com. The Corporation has provided a reconciliation of net income to EBITDA and Normalized EBITDA in this news release.
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 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 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 revenues to be received by Alaris (annually and on a quarterly basis), its general and administrative expenses in 2015, anticipated changes to Partner distributions for 2016, the timing and result of KMH's strategic process, the Q4 payment from Kimco and anticipated catch up payments, expectations regarding SMI's performance, and the cash requirements of Alaris in 2015. To the extent any forward-looking statements herein constitute a financial outlook, including, without limitation, estimates of revenues and expenses, 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 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 Partners will continue to make distributions to Alaris as and when required (or that Alaris will recover all or a substantial portion of an investment upon a default), that the businesses of the Partners will continue to grow, what the Corporation expects to experience regarding resets to its annual royalties and distributions from its 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. 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; government regulations; failure to achieve a positive resolution out of KMH's strategic process; 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 Private Company Partner or the industries they operate in and a change in the ability of the Partners to continue to pay Alaris' preferred distributions; and a material adjustment to any unaudited financial information that a Partner provided to Alaris. 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. 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)|
|September 30||December 31|
|Cash and cash equivalents||$14,592,122||$13,483,524|
|Prepayments and deposits||12,120,403||1,467,872|
|Trade and other receivables||6,836,447||5,551,730|
|Income tax receivable||-||1,866,572|
|Promissory notes receivable||10,199,795||8,965,000|
|Investment tax credit receivable||3,468,680||-|
|Promissory notes receivable||3,500,000||3,500,000|
|Investments at Fair Value||665,461,151||527,641,735|
|Investment tax credit receivable||4,942,531||10,922,393|
|Accounts payable and accrued liabilities||$1,993,426||$1,453,661|
|Income taxes payable||2,757,106||-|
|Loans and borrowings||10,425,000||-|
|Foreign exchange contracts||4,805,515||1,541,630|
|Deferred income taxes||10,427,391||7,712,668|
|Loans and borrowings||31,275,000||35,500,000|
|Fair value reserve||1,034,702||(2,637,352||)|
|Total Liabilities and Equity||$728,219,385||$579,896,719|
|Alaris Royalty Corp.|
|Condensed consolidated statement of comprehensive income (unaudited)|
|Three months ended Sept 30||Nine months ended Sept 30|
|Revenues and other income|
|Royalties and distributions||$22,824,948||$17,827,006||$59,178,710||$49,239,927|
|Interest and other||201,379||261,982||677,975||888,060|
|Gain on reduction of partner interests||-||-||2,792,457||-|
|Gain/(loss) on foreign exchange contracts||(3,944,219||)||(543,497||)||(5,653,091||)||(591,635||)|
|Total Revenue and other income||19,082,108||17,545,491||56,996,051||49,536,352|
|Salaries and benefits||510,339||478,181||2,316,018||3,169,423|
|Corporate and office||636,835||543,124||2,238,042||1,494,874|
|Legal and accounting fees||609,256||448,734||1,518,193||1,218,512|
|Non-cash stock-based compensation||191,610||1,118,282||2,646,387||2,951,424|
|Permanent impairment of units||20,460,000||-||20,460,000||-|
|Depreciation and amortization||63,693||27,844||140,515||82,159|
|Earnings from operations||(6,959,902||)||14,929,326||24,106,619||40,619,960|
|Unrealized foreign exchange (gain)/loss||(16,684,292||)||(4,677,567||)||(25,946,115||)||(4,544,550||)|
|Earnings before taxes||8,853,031||19,359,101||47,700,447||42,875,506|
|Current income tax expense||2,542,484||(1,100,183||)||5,984,185||450,338|
|Deferred income tax expense||(155,705||)||5,830,369||4,405,056||6,969,774|
|Other comprehensive income|
|Net change in fair value of Preferred LP Units||5,460,000||170,619||7,636,700||96,679|
|Tax impact of change in fair value||(682,500||)||83,549||(1,576,373||)||212,349|
|Realized gain on reduction of partnership interest||-||(2,792,457||)||-|
|Tax impact of realized gain||404,184||-|
|Foreign currency translation differences||9,538,953||3,044,420||14,953,564||2,901,139|
|Other comprehensive income for the period, net of income tax||14,316,453||3,298,588||18,625,618||3,210,167|
|Total comprehensive income for the period||$20,782,705||$17,927,503||$55,936,824||$38,665,561|
|Earnings per share|
|Basic earnings per share||$0.18||$0.46||$1.06||$1.19|
|Fully diluted earnings per share||$0.18||$0.45||$1.05||$1.16|
|Weighted average shares outstanding|
|Alaris Royalty Corp.|
|Condensed consolidated statement of cash flows (unaudited)|
|For the nine months ended September 30|
|Cash flows from operating activities|
|Earnings from the period||$37,311,206||$35,455,394|
|Deferred income tax expense||4,405,056||6,969,774|
|Depreciation and amortization||140,515||82,159|
|Unrealized foreign exchange loss/(gain)||(25,946,115||)||(4,544,550||)|
|Permanent impairment of units||20,460,000||-|
|(Gain)/Loss on foreign exchange contracts||3,263,885||(45,728||)|
|(Gain)/Loss on reduction of partner interests||(2,792,457||)||-|
|Non-cash stock based compensation||2,646,387||2,951,424|
|-trade and other receivables||(2,988,422||)||(2,348,965||)|
|-trade and other payables||3,296,871||(1,684,076||)|
|Cash generated from operating activities||35,066,959||37,819,890|
|Net cash from operating activities||$32,714,672||$35,530,886|
|Cash flows from investing activities|
|Acquisition of equipment||(740,878||)||(50,239||)|
|Acquisition/disposition of Preferred LP Units||(153,815,710||)||(54,609,577||)|
|Proceeds from reduction in Preferred LP Units||44,300,000||-|
|Net cash used in investing activities||$(110,256,588||)||(54,659,816||)|
|Cash flows from financing activities|
|New share capital, net of share issue costs||109,637,852||82,813,306|
|Proceeds from exercise of options||1,205,035||123,739|
|Borrowing of senior debt||157,000,000||53,200,000|
|Repayment of senior debt||(150,800,000||)||(84,200,000||)|
|Promissory notes issued||(4,964,850||)||(50,000||)|
|Promissory notes repaid||3,265,000||2,000,000|
|Payments in lieu of dividends on RSUs||-||(224,054||)|
|Net cash from financing activities||$77,335,326||$20,976,689|
|Net increase in cash and cash equivalents||(206,590||)||1,847,759|
|Impact of foreign exchange on cash balances||1,315,188||-|
|Cash and cash equivalents, Beginning of period||13,483,524||8,998,342|
|Cash and cash equivalents, End of period||$14,592,122||$10,846,101|