Alaris Royalty Corp. Releases Q3 2018 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, Nov. 05, 2018 (GLOBE NEWSWIRE) -- Alaris Royalty Corp. (“Alaris” or the "Corporation") is pleased to announce its results for the three and nine months ended September 30, 2018. The results are prepared under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Q3 2018 Highlights:

• New partner contribution announced in September 2018 of US$46.0 million to Body Contour Centers, LLC (“BCC”), in exchange for an annual distribution of US$6.4 million. The definitive agreement includes the potential for two additional contributions of US$20.0 million and US$25.0 million when BCC reaches specific financial thresholds.
• Follow on contribution to Accscient LLC (“Accscient”) of US$7.0 million bringing total capital invested into Accscient to US$30.0 million and run rate distributions of US$4.4 million;
• With our contributions into BCC and Accscient in the quarter, the Corporation has deployed $126.3 million year to date;
• Revenue from Partners in the quarter of $22.9 million, or $0.62 per share. The decrease of 4.6% on a per share basis over the prior year period ($23.7 million, $0.65 per share) was due to the overlap of distributions from SBI and Sequel for a one month period in 2017, which added $0.04 per share in the prior year period. For the nine months ended September 30, 2018, revenue has increased 10.8% ($2.05 vs. $1.85 per share) as distributions from new Partners, positive resets for the majority of the portfolio and forgone distributions from Labstat collected on redemption were partially offset by Partner redemptions;
• Normalized EBITDA in the quarter of $20.2 million, or $0.55 per share. The decrease of 3.5% on a per share basis over the prior year period ($20.7 million, $0.57 per share) was the result of the decrease in quarterly distributions (as noted above) partially offset by lower quarterly corporate expenses. Year to date Normalized EBITDA per share increased by 4.4% as higher distributions were partially offset by higher legal fees incurred in support of existing Partners;
• Paid $14.1 million in dividends in the three month period and $44.3 million for the nine months ended September 30, 2018, Actual Payout Ratios of 88.9% and 73.1% respectively. Actual Payout Ratios were lower than expected due to the collection of Agility accrued distributions and additional Labstat distributions in Q1 and Q2 respectively. Adjusting for the one time collection of Agility accrued receivables (Q1) and Labstat forgone distributions (Q2) the payout ratio for the nine months ended September 30, 2018 was 83.1%;
• Recorded a $7.1 million increase to investments at fair value during the quarter, as a result of seven positive write ups partially offset by one write down, primarily due to expected net positive distribution resets effective January 1, 2019. Year to date our investments at fair value have increased $11.2 million, or $0.306 per share accretion to book value.
• Reporting a healthy portfolio of 15 current partners with an average of approximately 18.5 years in business. 7 of those 15 partners have no debt on their balance sheets and two more with less than 1.0x EBITDA of debt.

“We are pleased to be reporting another strong quarter that included revenue and EBITDA as expected, the addition of another high quality partner in Body Contour Centers and a follow on contribution to a high performing partner. The BCC contribution comes with the ability to contribute an additional US$45 million of capital in a relatively short time frame, which bolsters the prospects for future capital deployment within our existing portfolio, which will supplement our continued deployment into new partners”, said Steve King, President and CEO.

Per Share Results	Three Months Ended					Nine months ended
Period ending September 30	2018	2017		% Change		2018	2017	% Change
Revenue per share	$0.62	$0.65		-4.6	%	$2.05	$1.85	+10.8	%
Normalized EBITDA per share	$0.55	$0.57		-3.5	%	$1.66	$1.59	+4.4	%
Net cash from operating activities per share	$0.46	$0.60		-23.3	%	$1.66	$1.43	+16.1	%
Dividends per share	$0.405	$0.405		+0.0	%	$1.215	$1.215	+0.0	%
Basic earnings per share	$0.52	$(0.60	)	+186.6	%	$1.17	$0.01	+11600.0	%
Fully diluted earnings per share	$0.52	$(0.60	)	+186.6	%	$1.16	$0.01	+11500.0	%
Normalized basic earnings per share	$0.48	$0.44		+9.1	%	$1.47	$1.21	+21.5	%
Weighted average basic shares outstanding (000’s)	36,486	36,444				36,483	36,433

¹Using the weighted average shares outstanding for the period.

Normalized EBITDA of $0.55 per share decreased 3.5% compared to the three months ending September 30, 2017 due to the Sequel and SBI investment overlap and slightly higher corporate costs, partially offset by positive net deployment and positive distribution resets. Net cash from operating activities was $0.46 per share, a decrease of 23.3% compared to the three months ended September 30, 2017. The decrease is a result of a change in working capital as the comparative period included a temporary increase in income taxes payable as a result of the Sequel redemption and resulting gain. Dividends paid were $0.405 per share during three months ended September 30, 2018, an Actual Payout Ratio of 88.9% for the period.

Normalized EBITDA of $1.66 per share increased by 4.4% compared to the nine months ending September 30, 2017 due to higher distributions, partially offset by higher corporate expenses and legal and accounting fees. Net cash from operating activities was $1.66 per share, an increase of 16.1% compared to the nine months ended September 30, 2017. The increase is a result of higher distributions (including Labstat as described above), the collection of US$2.9 million of unpaid distributions upon redemption of the Agility units, and the 2017 Labstat sweep of $4.2 million. Dividends paid were $1.215 per share during nine months ended September 30, 2018, an Actual Payout Ratio of 73.1% for the period. Excluding the one-time collection of the Agility accrued receivables and the collection of the previously forgone distributions from Labstat, the payout ratio would have been 83.1%.

Reconciliation of Net Income to EBITDA	Three months ended September 30				Nine months ended September 30
in thousands	2018		2017		2018		2017
Earnings	$  19,100		$  (22,031	)	$  42,818		$  472
Adjustments to Net Income:
Amortization and depreciation	42		67		172		201
Finance costs	1,493		1,923		6,027		5,007
Income tax expense	2,736		10,274		11,581		15,238
EBITDA	$  23,371		$  (9,767	)	$  60,598		$  20,918
Normalizing Adjustments
Gain on disposal of investment	-		(26,575	)	(8,144	)	(26,575	)
Increase in investments at fair value	(7,118	)	-		(11,151	)	-
Impairment and other charges	-		41,017		-		42,491
Bad Debt Expense	-		9,813		25,974		9,813
Distributions received on redemption (Labstat)	-		-		(4,282	)	-
Unrealized loss on foreign exchange	3,969		8,158		(2,148	)	12,730
Realized (gain) / loss on foreign exchange	7		(998	)	(146	)	(518	)
Penalties and Fees	-		(502	)	-		(502	)
Accretion of prom. notes & other receivables	-		(384	)	-		(396	)
Normalized EBITDA	$  20,229		$  20,762		$  60,701		$  57,960

Normalized Earnings	Three months ended September 30				Nine months ended September 30
in thousands except on per share basis	2018		2017		2018		2017
Earnings / (Loss) before the undernoted	$  27,298		$  (1,677	)	$  58,278		$  33,446
Finance costs	(1,493	)	(1,923	)	(6,027	)	(5,007	)
Impairment and other charges	-		41,017		-		42,491
Gain on partner redemptions	-		(26,575	)	(8,144	)	(26,575	)
Increase in investments at fair value	(7,118	)	-		(11,151	)	-
Distributions received on redemption (Labstat)	-		-		(4,282	)	-
Bad debt expense & reserve	-		9,813		25,974		9,813
Normalized Earnings pre-tax	$  18,687		$  20,655		$  54,648		$  54,168
Total income taxes	(2,736	)	(10,274	)	(11,581	)	(15,238	)
Tax normalizations for above items	1,434		5,764		10,621		5,219
Normalized Earnings	$  17,385		$  16,146		$  53,688		$  44,150
Normalized Earnings per share
Basic	$0.48		$0.44		$1.47		$1.21
Fully diluted	$0.47		$0.44		$1.46		$1.20

Outlook

Total actual revenue from partners is expected to be $24.5 million in Q4 2018.  Annual general and administrative expenses are currently estimated at $9.5 million for 2018 and include all public company costs.

The Corporation’s Run Rate Payout Ratio is approximately 94%. The table below sets out our estimated Run Rate Payout Ratio alongside the after-tax impact of potential changes to certain Partners distributions.

Run Rate Cash Flow (in 000's)	Comments	Amount ($)		$ / Share
Revenue	$1.32 USD/CAD exchange rate	$  99,100		$  2.72
General & Admin.		(9,500	)	(0.26	)
Interest & Taxes		(26,700	)	(0.73	)
Net cash flow		$  62,900		$  1.73
Annual Dividend		59,000		1.62
Surplus		$  3,900		$  0.11
Other Considerations (after taxes and interest):
SCR & Kimco	Every addtl $2 million in distributions received is $0.05/share	+1,600		+0.05
New Investments	Every $50 million deployed @ 15%	+3,563		+0.10

The senior debt facility was drawn to $147.3 million at September 30, 2018, with the capacity to draw up to another $152.7 million based on new covenants and credit terms, in addition to the $50 million accordion facility for a total of $203.0 million. The annual interest rate on that debt was approximately 5.6% at September 30, 2018.

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 be posted to the Corporation’s website within 24 hours at www.alarisroyalty.com

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 Run Rate 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 Run Rate Payout ratio may differ from the methods used by other issuers. Therefore, the Corporation’s EBITDA, Normalized EBITDA and Run Rate Payout Ratio may not be comparable to similar measures presented by other issuers.

Run Rate Payout Ratio: refers to Alaris’ total 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).

Actual Payout Ratio: refers to Alaris’ total cash dividends paid during the period (annually or quarterly) divided by the actual net cash from operating activities Alaris generated for the period.

EBITDA refers to earnings 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.

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 nine months ended September 30, 2018 and 2017, the gains on the redemption of the Agility units and the sale of the End of the Roll intangible asset, increase in fair value of investments, previously unrecognized distributions received upon the Labstat redemption and the KMH and Group SM bad debt expense are considered by management to be non-recurring charges. Foreign exchange realized and unrealized gains and losses are recurring but not considered part of operating results and excluded from EBITDA on an ongoing basis.  Adjusting for these non-recurring items allows management to assess EBITDA from ongoing operations.

Normalized Earnings refers to earnings excluding items that are non-recurring in nature and is calculated by adjusting for non-recurring expenses, gains, non-cash unrealized gains and losses on foreign exchange items and the net tax impact of the adjustments to earnings. Management deems non-recurring items to be unusual and/or infrequent items that the Corporation incurs outside of its common day-to-day operations. The corresponding tax impact of the all non-recurring items is adjusted in Normalized Earnings. For the three and nine months ended September 30, 2018 and 2017, the gain on the redemption of the Agility units and the sale of the End of the Roll intangible asset and associated tax impact, increase in fair value of investments, previously unrecognized distributions received upon the Labstat redemption and the KMH and Group SM bad debt expense are considered by management to be non-recurring charges. Foreign exchange realized and unrealized gains and losses are recurring but not considered part of operating results and excluded from earnings on an ongoing basis.  

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 2018; the revenues/contractual distributions to be received by Alaris in 2018 (annually and quarterly); the Run Rate  Payout Ratio; the Corporation’s general and administrative expenses in 2018; the impact of expected operational improvements and future investments for the Corporation in 2018; interest and tax expenses in 2018; dividends paid in 2018;  the Corporation’s ability to deploy capital, including redeploying proceeds from any redemptions; run rate cash from operating activities;  the cash requirements of the Corporation in 2018; dividends paid; and impact of capital deployment. To the extent any forward-looking statements herein constitute a financial outlook, including estimates regarding revenues, net cash from operating activities 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 2018 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 2018, 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, 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 or redeem proceeds from any redemptions in a timely fashion on anticipated term, 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, 2017, 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.

For more information please contact:

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

Alaris Royalty Corp. Condensed consolidated statement of financial position (unaudited)
	30-Sep		31-Dec
$ thousands	2018		2017
Assets
Cash and cash equivalents	$  16,089		$  35,475
Prepayments	2,049		2,407
Foreign exchange contracts	173		1,430
Trade and other receivables	1,826		8,642
Investment tax credit receivable	812		2,957
Promissory notes receivable	15,000		15,403
Current Assets	35,950		66,315
Promissory notes and other receivables	21,374		32,017
Deposits	19,259		19,252
Equipment	376		503
Intangible assets	-		6,116
Investments at fair value	701,692		669,216
Deferred income taxes	3,358		5,449.00
Non-current assets	746,059		732,552
Total Assets	$  782,009		$  798,867
Liabilities
Accounts payable and accrued liabilities	$  2,412		$  1,707
Dividends payable	4,921		4,921
Foreign exchange contracts	-		-
Income tax payable	957		588
Current Liabilities	8,291		7,217
Deferred income taxes	13,466		13,641
Loans and borrowings	147,337		173,464
Non-current liabilities	160,803		187,105
Total Liabilities	$ 169,095		$ 194,322
Equity
Share capital	$  621,082		$  620,842
Equity reserve	14,106		12,058
Fair value reserve	-		(17,036	)
Translation reserve	13,361		5,767
Retained earnings / (deficit)	(35,636	)	(17,087	)
Total Equity	$ 612,914		$ 604,545
Total Liabilities and Equity	$ 782,009		$ 798,867

Alaris Royalty Corp. Condensed consolidated statement of comprehensive income / loss (unaudited)
	Three months ended September 30					Nine months ended September 30
$ thousands except per share amounts	2018		2017			2018		2017
Revenues
Royalties and distributions	$  22,242		$  22,959			$  73,249		$  65,101
Interest and other	443		817			1,518		2,333
Total Revenue	22,685		23,775			74,768		67,435
Other income
Gain on partner redemptions	-		26,575			8,144		26,575
Increase in investments at fair value	7,118		-			11,151		-
Realized gain / (loss) on foreign exchange contracts	(7	)	998			146		518
Total other income	7,111		27,573			19,440		27,094
Salaries and benefits	776		665			2,806		2,741
Corporate and office	694		89			2,678		1,858
Legal and accounting fees	232		534			2,013		1,412
Non-cash stock-based compensation	753		839			2,288		2,566
Bad debt expense & reserve	-		9,813			25,974		9,813
Impairment and other charges	-		41,017			-		42,491
Depreciation and amortization	42		67			172		201
Total Operating Expenses	2,497		53,025			35,930		61,082
Earnings / (Loss) before the undernoted	27,298		(1,677	)		58,278		33,446
Finance costs	1,493		1,923			6,027		5,007
Unrealized (gain) / loss on foreign exchange contracts	(629	)	(685	)		1,285		(2,590	)
Unrealized foreign exchange (gain) / loss	4,598		8,843			(3,433	)	15,320
Earnings / (Loss) before taxes	21,836		(11,758	)		54,399		15,710
Current income tax expense / (recovery)	(2,218	)	20,442			7,889		24,458
Deferred income tax expense / (recovery)	4,954		(10,168	)		3,692		(9,220	)
Total income tax expense	2,736		10,274			11,581		15,238
Earnings / (Loss)	$  19,100		$  (22,031	)		$  42,818		$  472
Other comprehensive income / (loss)
Transfer on redemption of investments at fair value	-		(8,993	)		-		(8,993	)
Transfer from fair value reserve to impairment and other charges	-		4,250			-		4,250
Net change in investments at fair value	-		5,769			-		9,744
Tax effect of items in other comprehensive income	-		189			-		(335	)
Foreign currency translation differences	(6,677	)	(9,949	)		7,594		(17,872	)
Other comprehensive income / (loss)	(6,677	)	(8,734	)		7,594		(13,206	)
Total comprehensive income / (loss)	$  12,423		$  (30,765	)		$  50,412		$  (12,734	)
Earnings / (Loss) per share
Basic	$0.52		($0.60	)		$1.17		$0.01
Fully diluted	$0.52		($0.60	)		$1.16		$0.01
Weighted average shares outstanding
Basic	36,486		36,444			36,483		36,433
Fully Diluted	36,767		36,710			36,765		36,699

Alaris Royalty Corp.
Condensed consolidated statement of cash flows (unaudited)

	Nine months ended September 30
$ thousands	2018		2017
Cash flows from operating activities
Earnings / (Loss) from the period	$  42,818		$  472
Adjustments for:
Finance costs	6,027		5,007
Deferred income tax expense / (recovery)	3,692		(9,220	)
Depreciation and amortization	172		201
Bad debt expense & reserve	25,974		9,813
Impairment and other charges	-		42,491
Gain on partner redemptions	(8,144	)	(26,575	)
Increase in investments at fair value	(11,151	)	-
Unrealized (gain) / loss on foreign exchange contracts	1,285		(2,590	)
Unrealized foreign exchange (gain) / loss	(3,433	)	15,320
Non-cash stock-based compensation	2,288		2,566
	$  59,528		$  37,484
Change in:
- trade and other receivables	6,272		3,208
- income tax receivable / payable	369		16,292
- prepayments	(181	)	559
- accounts payable and accrued liabilities	705		(575	)
Cash generated from operating activities	66,694		56,970
Finance costs	(6,027	)	(5,007	)
Net cash from operating activities	$  60,666		$  51,963
Cash flows from investing activities
Acquisition of preferred units	$  (126,259	)	$  (149,395	)
Proceeds from partner redemptions	133,621		108,837
Promissory notes issued	(18,309	)	(11,246	)
Promissory notes repaid	6,055		463
Acquisition of equipment	-		(32	)
Net cash used in investing activities	$  (4,893	)	$  (51,373	)
Cash flows from financing activities
Repayment of debt	$  (161,598	)	$  (116,277	)
Proceeds from debt	131,672		137,564
Dividends paid	(44,331	)	(44,265	)
Deposits with CRA	-		(2,385	)
Net cash used in financing activities	$  (74,257	)	$  (25,363	)
Net decrease in cash and cash equivalents	$  (18,484	)	$  (24,774	)
Impact of foreign exchange on cash balances	(903	)	7,410
Cash and cash equivalents, Beginning of period	35,475		29,491
Cash and cash equivalents, End of period	$  16,089		$  12,127
Cash taxes paid	$  7,978		$  11,499