DIVERSIFIED ROYALTY CORP. ANNOUNCES Q2 2023 RESULTS AND STRONGEST ADJUSTED REVENUE(1) SECOND QUARTER IN ITS HISTORY
Diversified Royalty Corp. has released its financial results for the three months ended June 30, 2023, and the six months ended June 30, 2023.
Q2 2023 Highlights
Revenue of $14.1 million in Q2 2023 and $26.5 million for the six months ended June 30, 2023, up 27.7% and 27.2%, respectively, compared to the same periods in 2022.
Adjusted revenue1 of $15.4 million in Q2 2023 (DIV's strongest adjusted revenue1 quarter to date since adopting its multi-royalty strategy in 2013) and $29.0 million for the six months ended June 30, 2023, up 25.1% and 24.5%, respectively, compared to the same periods in 2022.
Distributable cash1 of $9.8 million in Q2 2023 and $18.6 million for the six months ended June 30, 2023, up 23.7% and 23.2%, respectively, compared to the same periods in 2022.
Payout ratio1 of 87.5% in Q2 2023 based on dividends of $0.06 per share for the quarter, compared to 86.1% in Q2 2022 based on dividends of $0.055 per share for the comparable quarter and 91.6% for the six months ended June 30, 2023 based on dividends of $0.12 per share for the period, compared to 89.7% based on dividends of $0.11 per share for the comparable period.
In Q2 2023, DIV generated $14.1 million of revenue compared to $11.1 million in Q2 2022. 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 $15.4 million in Q2 2023, compared to $12.3 million in Q2 2022. Adjusted revenue increased primarily due to positive trends experienced by most of DIV's royalty partners, as discussed in further detail below. In addition, incremental revenue was generated from the addition of four net new locations to the Mr. Lube Canada Limited Partnership ("Mr. Lube") royalty pool on May 1, 2022, the addition of five new locations to the Mr. Lube royalty pool on May 1, 2023, plus incremental royalty income generated from Stratus (defined below) beginning on November 15, 2022.
Second Quarter Commentary
Sean Morrison, President and Chief Executive Officer of DIV stated, "DIV is pleased with how its royalty partners performed in the second quarter of 2023. Q2 was DIV's best second quarter, in terms of adjusted revenue6 and distributable cash6, in its history as a royalty company. Mr. Lube, our largest royalty partner, continues to produce strong double-digit growth, generating SSSG7 of 21.1% for the three-month period ended June 30, 2023, while Mr. Mikes and Oxford generated positive SSSG7 results of 5.5% and 8.6%, respectively. Royalty partners Nurse Next Door, Sutton and Stratus made their fixed royalty payments. Q2 represented the first quarter with Sobey's fully exited from the AIR MILES program resulting in the large year-over-year decrease in royalty income from AIR MILES. However, there were several positive developments for AIR MILES in Q2: ownership transferred to BMO, the outstanding Q1 royalty payment was paid in full, and Dollarama was added as a new loyalty partner. DIV believes stability of ownership, in the hands of BMO, provides AIR MILES with significant credibility and the ability to attract more new loyalty partners going forward. DIV's Q2 2023 weighted average organic royalty growth7 was 10.3% (excluding the collection of $0.05 million in Mr. Mikes deferred contractual royalty fees and accrued management fees), once again demonstrating the overall strength of DIV's diversified portfolio."
Distributable Cash and Dividends Declared
In Q2 2023 and for the six months ended June 30, 2023, distributable cash8 increased to $9.8 million ($0.0686 per share) and $18.6 million ($0.1311 per share), respectively, compared to $7.9 million ($0.0639 per share) and $15.1 million ($0.1226 per share) for the same respective periods in 2022. The increase in distributable cash was primarily due to higher adjusted revenue (including payments from Mr. Mikes representing partial payment of deferred contractual royalty fees and deferred contractual management fees described above), partially offset by higher current tax expense, higher interest expense and professional fees. The increase in distributable cash per share8 was primarily due to the increase in distributable cash, partially offset by a higher weighted average number of common shares outstanding.
Net Income
Net income for Q2 2023 and the six months ended June 30, 2023, was $9.1 million and $15.8 million, respectively, compared to net income of $7.1 million and $13.3 million for the same respective periods of 2022. 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 and interest expenses on credit facilities.