Slightly Positive Q4 Print Our Conclusion
Alaris reported a slightly stronger-than-expected quarter with revenue and
G&A both coming in a bit better than anticipated. The weighted average
earnings coverage ratio and run-rate payout ratio were both stable. The
company indicated it expects a flat overall reset in 2024, but this is not
particularly surprising considering revenue trends at the private company
partners in 2023. Overall, we thought it was a slightly positive quarter. We
maintain our Outperformer rating and $20.00 price target.
Key Points
Revenue and G&A were both a bit better than expected in Q4. Alaris
reported revenue of $41.9 million, which was a bit better than prior guidance
of $39.9 million. The company attributed the variance to higher-than-
expected common dividends. G&A also came in at $3.7 million, which was
the lowest level in almost two years and a bit below the previously
communicated annual run-rate of $15.5 million.
Weighted average earnings coverage ratio (ECR) was stable. The
weighted average ECR remained above 1.5x in Q4, which was unchanged
sequentially. By our count, four companies moved up a band and five moved
down, but the net impact on the weighted average ECR was generally
neutral. Of note, LMS reported an ECR that was above 1.0x for the first time
in over a year. However, Ohana (the second largest partner by run-rate
revenue) dropped a band and now sits at 1.0x-1.2x. Management indicated
that the decline was attributable to an increase in locations in 2023 and the
incremental expenditures required. However, Ohana has positively revised
its outlook and Alaris increased the fair value of its common equity
investment by US$9.4 million in the quarter.
Weighted average portfolio reset was flat for 2024. Alaris indicated that
its run-rate revenue forecast was based on flat reset expectations on
preferred distributions. We had previously pointed out that a roughly
equivalent number of private company partners experienced Y/Y revenue
growth in the first nine months of 2023 versus a decline. As a result, a flat
overall reset is not particularly surprising.
Payout ratio remains unchanged. Alaris did not announce any material
investments or redemptions with Q4 reporting. As a result, the run-rate
payout ratio remains unchanged at 65% to 70%. This comfortably supports a
healthy dividend yield of 8.1%.
Revising our estimates. We have made a variety of changes and
adjustments to our model, primarily reflecting the resets and new run-rate
revenue expectations for private company partners as well as a higher
CAD/USD forecast. Our 2024 EPS estimate increases 7% but is now more in
line with the consensus average.