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Bullboard - Stock Discussion Forum Diversified Royalty Corp T.DIV

Alternate Symbol(s):  BEVFF | T.DIV.DB.A

Diversified Royalty Corp is a multi-royalty company. It is engaged in the business of acquiring royalties from multi-location businesses and franchisors in North America. As a part of the investment strategy, the firm always purchases trademarks of the companies it is going to acquire. The company gives its partners the benefit of full operational control of their business, participation in the growth of their company, and tax deductibility on royal payments. All of the company's operating...

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News

divime1 (152) | August 12, 2022 08:21 pm

VANCOUVER, British Columbia, Aug. 12, 2022 (GLOBE NEWSWIRE) -- Diversified Royalty Corp. (TSX: DIV; DIV.DB and DIV.DB.A) (the "Corporation" or "DIV") is pleased to announce its financial results for the three months ended June 30, 2022 ("Q2 2022") and six months ended June 30, 2022.

Q2 2022 Highlights

  • Revenue of $11.1 million in Q2 2022 (DIV's strongest revenue quarter since adopting its multi-royalty strategy in 2013) and $20.8 million for the six months ended June 30, 2022, up 20.8% compared to the three months ended June 30, 2021 ("Q2 2021") and 24.1% compared to the six months ended June 30, 2021.
  • Adjusted revenue1 of $12.3 million in Q2 2022 and $23.3 million for the six months ended June 30, 2022, up 18.6% and 21.3%, respectively, compared to the same periods in 2021.
  • Distributable cash1 of $7.9 million in Q2 2022 and $15.1 million for the six months ended June 30, 2022, up 16.7% and 19.3%, respectively, compared to the same periods in 2021.
  • Payout ratio1 of 86.1% in Q2 2022 and 89.7% for the six months ended June 30, 2022, based on dividends of $0.22 per share on an annualized basis, an improvement compared to 89.9% and 96.0%, respectively, compared to the same periods in 2021, based on dividends of $0.20 per share on an annualized basis2.

Second Quarter and Year-to-Date Results

  Three months ended June 30,   Six months ended June 30,  
(000's)   2022     2021     2022     2021  
Mr. Lube $ 6,165   $ 4,753   $ 10,974   $ 8,383  
AIR MILES(TM)   1,791     1,623     3,321     3,148  
Sutton   1,053     1,033     2,106     2,066  
Oxford1   1,135     923     2,165     1,829  
Mr. Mikes   916     823     2,216     1,320  
Nurse Next Door   1,273     1,246     2,545     2,492  
Adjusted revenue2 $ 12,333   $ 10,401   $ 23,327   $ 19,238  

1) For the six months ended June 30, 2022, Mr. Mikes adjusted revenue includes a one-time payment from Mr. Mikes of $0.55 million, received in March 2022, representing partial payment of deferred contractual royalty fees and accrued management fees, which has been recognized as revenue upon collection.
2) Adjusted revenue is a non-IFRS financial measure and as such, does not have a standardized meaning under IFRS. For additional information, refer to "Non-IFRS Financial Measures" in this news release.

In Q2 2022, DIV generated $11.1 million of revenue compared to $9.2 million in Q2 2021. After taking into account the DIV Royalty Entitlement1 (defined below) related to DIV's royalty arrangements with Nurse Next Door Professional Homecare Services Inc. ("Nurse Next Door"), DIV's adjusted revenue was $12.3 million in Q2 2022, compared to $10.4 million in Q2 2021. Adjusted revenue increased primarily due to positive trends experienced by DIV's royalty partners, as discussed in further detail below. DIV's royalty partner revenues in Q2 2022 were less impacted by COVID-19 and the related government restrictions than in Q2 2021. In addition, incremental revenue was generated from the full period inclusion of both the 13 locations added to the Mr. Lube Canada Limited Partnership ("Mr. Lube") royalty pool and the 0.5% increase in the Mr. Lube royalty rate on May 1, 2021, plus further incremental revenue from the 4 net stores added to the Mr. Lube Royalty Pool on May 1, 2022.

  1. Adjusted revenue, distributable cash and DIV Royalty Entitlement are non-IFRS financial measures and payout ratio is a non-IFRS ratio, and as such, do not have a standardized meaning under IFRS. For additional information, refer to "Non-IFRS Measures" in this news release.
  2. On a pro forma basis, if the dividends for the three and six months ended June 30, 2021 were paid out on an annualized basis of $0.22 per share, the payout ratio would have been 98.8% and 105.6%, respectively.

For the six months ended June 30, 2022, DIV generated $20.8 million of revenue compared to $16.8 million for the six months ended June 30, 2021. After taking into account the DIV Royalty Entitlement1 (defined below) related to DIV's royalty arrangement with Nurse Next Door, DIV's adjusted revenue was $23.3 million for the six months ended June 30, 2022, and $19.2 million for the six months ended June 30, 2021. The increase in adjusted revenue was primarily due to the positive trends experienced by DIV's royalty partners in the current period, as well as the full period inclusion of both the 13 locations added to the Mr. Lube royalty pool and the 0.5% increase in the Mr. Lube royalty rate on May 1, 2021, plus further incremental revenue from the 4 net stores added to the Mr. Lube Royalty Pool on May 1, 2022. DIV's royalty partner revenues in the six months ended June 30, 2022 were less impacted by COVID-19 and the related government restrictions than in the six months ended June 30, 2021.

Royalty Partner Business Updates

Mr. Lube: Mr. Lube generated same-store-sales-growth ("SSSG")3 of 23.5% for the Mr. Lube stores in the royalty pool for Q2 2022 and 20.3% for the six months ended June 30, 2022, compared to SSSG of 21.8% and 13.2%, for the same respective prior periods in 2021, representing record results for Mr. Lube. The increase was primarily due to resumption of consumer pre-pandemic activities and associated vehicle service intervals, continued growth in Mr. Lube's maintenance, tire and mechanical service offerings and the effectiveness in Mr. Lube's targeted multimedia marketing campaigns.

3. Same-store-sales growth or SSSG is a non-IFRS financial measure - see "Non-IFRS Measures" below.

AIR MILES(TM): Loyalty Ventures Inc. ("Loyalty Ventures"), the parent company of LoyaltyOne Co. ("LoyaltyOne"), issued a news release on August 11, 2022 regarding the Q2 2022 performance of the AIR MILES(TM) reward program announcing that AIR MILES(TM) reward miles issued increased by 7.8% and AIR MILES(TM) reward miles redeemed increased by 54.0% in Q2 2022, primarily due to the continued demand for travel as COVID-related restrictions abated.

Loyalty Ventures also announced that during the second quarter of 2022, AIR MILES(TM) sponsor Sobeys provided notice of its intent to exit the AIR MILES(TM) Reward Program on a region-by-region basis between mid-August and the first quarter of 2023. Loyalty Ventures did, however, note that AIR MILES(TM) would now be able to expand AIR MILES(TM) issuances into adjacent verticals, including mass merchants, convenience stores, dollar stores and other retailers that were previously precluded by the terms of the Sobeys' contract. In addition, Loyalty Ventures announced that AIR MILES(TM) recently partnered with a key sponsor, Bank of Montreal ("BMO"), to launch a new benefit for BMO AIR MILES(TM) credit cardholders, enabling them to earn extra miles on all grocery purchases, regardless of retailer.

Sutton: During the six months ended June 30, 2022, 100% of the fixed royalty was collected from Sutton. The fixed royalty payable by Sutton increases at a rate of 2% per year, with the most recent increase effective July 1, 2022.

Oxford: Oxford locations in the Oxford royalty pool generated SSSG (on a constant currency basis) of 21.4% in Q2 2022 and 17.8% for the six months ended June 30, 2022, compared to SSSG of 41.3% and 3.4%, for the same respective periods in 2021. In Q1 2022, Oxford saw a transition back to in-person tutoring for many locations. Building off a strong first quarter, Oxford's second quarter 2022 saw a strong recovery with system sales4 comparable to pre-pandemic levels. May and June 2022 were the strongest May and June in Oxford's history, on the basis of system sales, and are two of the strongest system sales months in its 38-year history.

4. Systems sales is a supplementary financial measure - see "Non-IFRS Measures" below.

Mr. Mikes: SSSG for the Mr. Mikes restaurants in the royalty pool was 94.5% in Q2 2022 and 55.4% for the six months ended June 30, 2022, compared to SSSG of 77.3% and negative 49.8% for the same respective periods in 2021, which included stores that were temporarily closed due to the COVID-19 pandemic in 2021.

For the three and six months ended June 30, 2022, DIV granted royalty and management fee relief to Mr. Mikes in connection with the COVID-19 pandemic, collecting 92% and 79% of the contractual royalty amounts, respectively. In May and June 2022, Mr. Mikes saw a strong recovery to pre-pandemic levels.

Nurse Next Door: The royalty entitlement to DIV (the "DIV Royalty Entitlement5") from Nurse Next Door was $1.3 million in Q2 2022. The DIV Royalty Entitlement from Nurse Next Door grows at a fixed rate of 2.0% per annum during the term of the license, with the most recent increase effective October 1, 2021. In Q2 2022, Nurse Next Door signed 20 new franchises primarily in major metropolitan markets (14 in the US and 6 in Australia). Nurse Next Door continues to make its fixed royalty payment to DIV in full, which DIV expects will continue.

5. DIV Royalty Entitlement is a non-IFRS measure - see "Non-IFRS Financial Measures" below.

Second Quarter Commentary

Sean Morrison, President and Chief Executive Officer of DIV stated, "We are excited to announce record royalty revenues in Q2 2022, with strong performances across all of our royalty partners. Mr. Lube, our largest royalty partner, produced record results, generating SSSG of 23.5% for the three-month period ended June 30, 2022, and SSSG of 20.3% for the six months then ended. Oxford Learning also produced record results, with May and June 2022 being the best May and June in its history (based on system sales), reflecting a strong demand for tutoring services and a return to in-person services. Mr. Mikes bounced back to pre-COVID levels after the removal of COVID-19 vaccine mandates in early 2022 and the AIR MILES royalty had double digit growth compared to Q2, 2021. In addition, Sutton and Nurse Next Door continue to make their fixed-growth royalty payments. Coupled with our record results, the Company saw weighted average organic growth in its royalty partners of 16.4% in Q2, 2022."

Distributable Cash and Dividends Declared

In Q2 2022 and for the six months ended June 30, 2022, distributable cash increased to $7.9 million ($0.0639 per share) and $15.1 million ($0.1226 per share), respectively, compared to $6.8 million ($0.0556 per share) and $12.7 million ($0.1042 per share) for the same respective periods in 2021. The increase in distributable cash was primarily due to higher adjusted revenue, partially offset by higher current tax expense, salaries and benefits and interest expense. The increase in distributable cash per share6 was primarily due to the increase in distributable cash, partially offset by a higher weighted average number of common shares outstanding.

In Q2 2022 and for the six months ended June 30, 2022, the payout ratios were 86.1% and 89.7%, respectively, an improvement when compared to the payout ratios of 89.9% and 96.0% for the same respective periods in 2021. The decrease was primarily due to higher distributable cash, partially offset by higher dividends declared per share.

6. Distributable cash per share is a non-IFRS ratio and as such, does not have a standardized meaning under IFRS. For additional information, refer to "Non-IFRS Financial Measures" in this news release.

Net Income

Net income for Q2 2022 and the six months ended June 30, 2022, was $7.1 million and $13.3 million, respectively, compared to net income of $5.2 million and $9.3 million for the same respective periods of 2021. The increase in net income was primarily due to higher adjusted revenues, and higher fair value gains on financial instruments partially offset by an increase in income tax expenses, interest expenses on credit facilities, and salaries and benefits.

RE:News

babedinkleman (2489) | August 12, 2022 08:59 pm

Tough to argue with results like that.....pretty much everything is firing on all cylinders !  Mr. Lube continues to defy the odds and Mr. Mikes seems to be back on track.  Air Miles may be lagging more going forward but the others should make up for that if this quarter is any indication.

RE:RE:News

LTInvest1234 (15) | August 12, 2022 09:13 pm

For sure and the dividend distribution looks solid. A buy and hold for me from here.


RE:RE:News

Divies (12) | August 12, 2022 09:20 pm

Fantastic results, even better than I expected. With almost 5 million short, shorts should be very worried for Monday's open. What are your thoughts on next week's trading?

RE:RE:RE:News

babedinkleman (2489) | August 12, 2022 11:16 pm

I don't see how it doesn't trade up at least somewhat on these results.....they were just about as good as they could have been.  DIV never exactly trades how you'd expect it to though.....it often goes up out of the blue for no reason then doesn't respond the way it should to good news. 
This was the first full quarter where to my knowledge we were free of all covid restrictions so the percentage increases had to be somewhat expected.  Still.....other than my earlier concerns about Mr. Lube and Air Miles in the future this thing is hitting it out of the park right now. 
God I'd be thrilled though if somehow they could monetize 'half' of Mr. Lube (not sure if that sort of transaction is possible but it would be great if it was) at a premium when it's hot right now and replace that revenue with some more Nurse Next Door or Oxford Learning type new royalties.....ones that you know that should still be around and thriving in decades.
With this latest quarter Mr. Lube now accounts for almost exactly FIFTY percent of adjusted revenue.....partially because of more revenue per location and partially because DIV is required to buy into all these new locations being added into the pool.  Of course there are worse problems to have....but you know my thoughts on Mr. Lube's long term prospects.  I'd be much more comfortable if it was 25% at most. 

RE:RE:RE:RE:News

Shirtlessnomore (345) | August 13, 2022 06:40 pm

I agree, their results speak for themselves, I'm glad and hope it continues for everyone here! Cheers
babedinkleman wrote: I don't see how it doesn't trade up at least somewhat on these results.....they were just about as good as they could have been.  DIV never exactly trades how you'd expect it to though.....it often goes up out of the blue for no reason then doesn't respond the way it should to good news. 
This was the first full quarter where to my knowledge we were free of all covid restrictions so the percentage increases had to be somewhat expected.  Still.....other than my earlier concerns about Mr. Lube and Air Miles in the future this thing is hitting it out of the park right now. 
God I'd be thrilled though if somehow they could monetize 'half' of Mr. Lube (not sure if that sort of transaction is possible but it would be great if it was) at a premium when it's hot right now and replace that revenue with some more Nurse Next Door or Oxford Learning type new royalties.....ones that you know that should still be around and thriving in decades.
With this latest quarter Mr. Lube now accounts for almost exactly FIFTY percent of adjusted revenue.....partially because of more revenue per location and partially because DIV is required to buy into all these new locations being added into the pool.  Of course there are worse problems to have....but you know my thoughts on Mr. Lube's long term prospects.  I'd be much more comfortable if it was 25% at most.