Superb Q3 and Increases Dividend ..hires IR
Grenville Strategic earns $3.89-million in Q3 2015
2015-11-17 06:53 ET - News Release
Mr. William Tharp reports
GRENVILLE STRATEGIC ROYALTY ANNOUNCES 2015 THIRD QUARTER RESULTS
Grenville Strategic Royalty Corp. has released its financial and operating results for the three-month period ended Sept. 30, 2015 (third quarter 2015).
2015 Third Quarter Financial Highlights
(Comparisons made between fiscal Q3 2015 and fiscal Q3 2014 results, unless otherwise noted)
-- Revenues of $4,537,725, an increase of 401% over Q3 2014 -- Realized gains on contract buyouts were $2,196,642 -- Adjusted EBITDA(1) of $4,326,034, an increase of 699% over Q3 2014 -- Free Cash Flow(1) of $2,654,803 -- Income after taxes was $3,899,245, an increase of 638% -- Declared a November dividend of $0.00583 per share, or $0.07 on an annualized basis, subsequent to the end of the period, representing a 40% increase over the previous monthly dividend
2015 Third Quarter Portfolio Highlights
-- Average royalty payment per million invested(1) was $250,583 for the month of September 2015, or $242,198 net of an adjustment for two royalty payments as a result of the INOVx contract buyout -- Including contract buyouts, average royalty payment per million invested(1) of $369,419 and $306,018 for the month of September and the twelve month period ended September 30, 2015, respectively -- Royalty agreements, follow-on financings and new loans acquired were $4,970,940 million for Q3 2015, bringing the aggregate net value of acquired royalties and loans since inception to the end of Q3 2015 to $42,762,458 -- Successful closing of four contract buyouts since the start of Q3, consisting of Wmode and DS Handling and, subsequent to the end of the period, Above Security and INOVx, totaling $12.1m
"The decision to increase the dividend reflects both the consistent performance of our royalty portfolio and its scale. In making this dividend increase, we have retained cash flows and reserves to be able to comfortably manage the business and be consistent with prior communications on our growth plus yield business model. Revenue, adjusted EBITDA and free cash flow continue to grow with our seventh consecutive record quarter. The Q3 results do not include the $2,737,235 of realized gains from the contract buyouts for Above Security and INOVx which will be reported with the Q4 results." said William (Bill) R. Tharp, President and Chief Executive Officer of Grenville. "Our four successful contract buyouts provide additional capital to redeploy into new opportunities. The breadth of these new opportunities allows us to further diversify and strengthen the portfolio and continue to provide stable and sustainable returns to shareholders."
Financial Highlights ---------------------------------------------------------------------------- Three months ended Nine months ended Canadian dollars September 30, September 30, ------------------------------------------------- 2015 2014 2015 2014 ---------------------------------------------------------------------------- Revenues $ 4,537,725 $ 905,384 $ 8,446,957 $ 1,409,546 ---------------------------------------------------------------------------- Profit/(Loss) for the period 3,899,245 528,558 5,272,510 (3,377,297) ---------------------------------------------------------------------------- Basic Earnings/(Loss) per share 0.0394 0.0089 0.0614 (0.0734) ---------------------------------------------------------------------------- Diluted Earnings/(Loss) per share 0.0321 0.0089 0.0532 (0.0734) ---------------------------------------------------------------------------- Adjusted EBITDA(1) 4,326,034 541,579 5,904,581 551,810 ---------------------------------------------------------------------------- Adjusted EBITDA(1) excluding impairment provision 3,916,970 541,579 6,503,922 551,810 ---------------------------------------------------------------------------- Free cash flow(1) 2,654,803 (388,668) 3,597,072 (292,587) ---------------------------------------------------------------------------- Royalty agreements acquired and new loans in period 4,970,940 9,540,053 18,130,210 18,210,768 ----------------------------------------------------------------------------
Revenues
Revenues were $4,537,725 and $8,446,957 for Q3 2015 and the nine-month period ended September 30, 2015 (YTD 2015), respectively, compared with $905,384 and $1,409,546 for the corresponding periods in 2014. The increase was driven by two factors: growth in the aggregate investment over the previous year; and realized gains on contract buyouts. Royalty payment income increased to $2,298,409 and $5,879,539 for Q3 2015 and YTD 2015, respectively, from $842,595 and $1,283,470 for the corresponding periods in 2014. Realized gains on contract buyouts was $2,196,642 for Q3 2015 and YTD 2015, which related to Wmode and DS Handling, compared to nil last year.
Management believes contract buyouts will contribute to revenue on a regular basis as the portfolio matures, but will fluctuate more than regular monthly portfolio cash flows received from the portfolio. As of November 16, 2015, the Company has generated $12.1 million in contract buyouts since its inception.
Operating Expense
Total operating expenses were $(797,379) and $(630,220) for Q3 2015 and YTD 2015, respectively, compared with $31,686 and $4,441,703 for the corresponding periods in 2014. The change was primarily driven by net foreign exchange gains in the 2015 periods and $3,636,197 of expenses directly attributable to the RTO in the YTD 2014 period. The Company recorded net foreign exchange gains of $1,510,814 and $2,552,248 in Q3 2015 and YTD 2015, respectively, almost entirely comprised of unrealized foreign exchange gains on the translation of royalty agreements acquired in US dollars.
Income (loss) After Taxes
Income (loss) after taxes was $3,899,245 and $5,272,510 for Q3 2015 and YTD 2015, respectively, compared to $528,558 and $(3,377,297), for corresponding periods last year. The improvements were due to higher revenues in each of the 2015 periods, as the Company scaled its portfolio, as well as the foreign exchange gains and the RTO expense in 2014. It also includes $409,064 recovered, net of collection costs, related to the $1,000,000 impairment recorded in Q4 2014 related to the APO Group investment.
Adjusted EBITDA(1)
Adjusted EBITDA(1) was $4,326,034 and $5,904,581 for Q3 2015 and YTD 2015, respectively, compared to $541,579 and $551,810 for corresponding periods last year. The increases were due to increased revenues of $3,632,341 and $7,037,411 respectively as a result of $22,641,690 in new royalty agreements acquired since the end of September 2014 and the realized gains on two contract buyouts of $2,196,642.
Free Cash Flow(1)
Free cash flow(1) was $2,654,803 and $3,597,072 for Q3 2015 and YTD 2015, respectively, compared to $(388,668) and $(292,587) for the corresponding periods last year. The increases were due to the increase in revenues, in particular the realized gains on contract buyouts of $2,196,642.
Dividend
Grenville today declared a November dividend, payable on December 15, 2015, to holders of record on November 30, 2015, in the amount of $0.00583 per share, which represents $0.07 on an annualized basis. The aggregate dividend payments during Q3 2015 were $1,232,194. Subsequent to the end of the period, the Company declared aggregate dividends of $825,865 for the months of October and November. All dividend payments have come, or will come, from available free cash flow of the Company.
Portfolio Performance Profile
On a quarterly basis, the Company carries out a performance review of the portfolio on royalty agreements acquired and loan receivable balance, with December 31, 2014 and September 30, 2014 outlined as follows:
To view the bar graph accompanying this press release, please visit the following link: https://media3.marketwire.com/docs/1033251_charts.pdf
Since December 2014, Portoflio Performance for the Off Target category has remained at a similar level while the Above Target and Bought Out categories have shown significant growth, in line with management's expectation, reflecting Grenville's investment strategy to invest across a portfolio of companies diversified by currency, sector and investment type.
Average Royalty Payment per Million Invested(1)
The average royalty payment per million invested(1) for the month of September 2015 was $250,583, prior to an adjustment to $242,198 to account for the adjusted royalty payments related to the INOVx contract buyout. Including realized gains on contract buyouts, the result was $369,419 for the month of September.
The rolling twelve-month average of total royalty income(1) was $306,018 for the period ended September 30, 2015, up from $216,967 at the end of Q3 2014 and $246,686 at the end of Q2 2015.
To view the bar graph accompanying this press release, please visit the following link: https://media3.marketwire.com/docs/1033251_charts.pdf
Rolling Three-Month Average Investment per Month(1)
As of October 31, 2015, the rolling three-month average investment per month(1) was $2,904,642.
To view the bar graph accompanying this press release, please visit the following link: https://media3.marketwire.com/docs/1033251_charts.pdf
Rolling Three-Month Average Investment per Transaction(1)
As of October 31, 2015, the rolling three-month average investment per transaction(1) was $814,439.
Outlook
As the Company continues to scale its business, it is building a diversified U.S. and Canadian dollar portfolio consisting of cyclical, neutral and defensive asset classes and varying revenue growth categories. The portfolio has been designed through diversification and asset selection to mitigate a level of portfolio company impairment that would be expected in small to medium enterprise (SME) investments. The Company has invested more than $47.4 million of capital across 51 investments in 28 portfolio companies. Management is building a balanced portfolio based on the pricing of risk in the SME market a rate of $250,000 of annual revenue per million of invested capital (1), equivalent to a portfolio return of 25%. The portfolio has reached a scale at which it is generating stable income and Adjusted EBITDA (1), allowing the Company to declare dividends. The four contract buyouts announced since the beginning of Q3 2015 generated a return in excess of the 25% targeted portfolio return and represent a material ancillary revenue source for the company. Management believes contract buyouts will continue to form a meaningful part of the Company's annual revenue stream. However, given their nature, the timing of buyouts and buydowns will be more irregular than monthly royalty revenue streams of the Company's core portfolio, which are consistent in nature. Total contract buyouts to date of $12.1 million have generated additional cash flow to the business of $5.0 million.
Grenville's royalty agreements with its portfolio companies provided revenue to the Company of approximately $4.5 million for the three-month period ended September 30, 2015. As of November 16, 2015, management estimates October 2015 revenues will be approximately $0.775 million, excluding the $2.31 million in revenue as a result of the buyout of the Company's Above Security and INOVx investments. Since the end of the third quarter, Grenville has completed $3.6 million in new investments. Operating expenses for Q3 2015, excluding any foreign exchange effects, were approximately $0.21 million per month, and are estimated to be in the range of $2.2 million to $2.8 million on an annualized basis in Q4 2015.
Grenville's unique capital offering continues to fill an expansive niche in North American small to medium enterprise, growth-capital markets. With continued access to funding accretive to shareholder value, management is confident the Company will be able to add new portfolio companies to its existing portfolio holdings. Each new portfolio company added will further diversify and strengthen Grenville's existing portfolio balance. Management also believes that the revenue contribution per portfolio-company added will be priced at roughly the same rate as existing companies within the portfolio.
Grenville may also expand the range of financial instruments and solutions employed where the use of these additional instruments can enhance or defend portfolio value, including secured and unsecured short-term debt instruments, obtaining security on existing investments and equity-based instruments. At the present time, the holding of secured and unsecured short-term debt instruments, totaling $1.9 million in aggregate investments, forms an immaterial percentage of the Company's total investments.
Grenville's financial statements and management's discussion and analysis for the three- and six-month periods ended September 30, 2015 will be filed on SEDAR at www.sedar.com and will be available on Grenville's website at www.grenvillesrc.com.
Investor Relations Appointment
Grenville is pleased to announce that it has retained the services of Renmark Financial Communications Inc. ("Renmark") to handle its investor relations activities. In consideration of the services to be provided, Grenville has agreed to pay a monthly retainer of $7,000 starting November 1st, 2015 to Renmark. Renmark does not have any interest, directly or indirectly, in Grenville or its securities, or any right or intent to acquire such an interest.
We seek Safe Harbor.