Alaris Royalty Corp.
TSX : AD

Alaris Royalty Corp.

March 13, 2009 09:43 ET

Alaris Royalty Corp. Releases 2008 Financial Results and Reduces Monthly Dividend Starting in March, 2009

CALGARY, ALBERTA--(Marketwire - March 13, 2009) - Alaris Royalty Corp. (TSX:AD) ("Alaris" or the "Corporation") today announced its results for the year ended December 31, 2008 and for the fourth quarter ended December 31, 2008.

Revenues for the year ended December 31, 2008 were $18.9 million, an increase of 67% over the prior year ($11.4 million) reflecting a new private company financing that closed in December 2007 bringing the total to four private companies to which Alaris has provided financing (collectively, the "Finance Group" and individually, a "Finance Group Member"). Additionally, each of Alaris' other three Finance Group Members recorded same store sales increases in 2008 that increased the annual royalty or distribution compared to the prior year.

The Corporation recorded a net loss of $3.0 million, EBITDA of $7.8 million, and normalized EBITDA of $16.2 million for the year ended December 31, 2008, compared to $1.8 million of net income and $7.5 million of EBITDA for the prior year. The net loss was the result of $8.2 million in non-cash stock-based compensation expenses recorded in the year. The increase in normalized EBITDA is attributed to the increase in revenues as the general and administrative expenses of the Corporation only increased modestly as a result of public company expenses in the second half of 2008.

For the three months ended December 31, 2008, the Corporation recorded net income of $2.5 million and EBITDA of $3.3 million, compared to a net loss of $1.5 million and $68,000 of EBITDA for the prior year period. The net loss in the prior year period was the result of a $1.5 million fee paid on the subordinated debt facility in December 2007. The remainder of the increase in net income and normalized EBITDA is attributed to the increase in revenues.

On July 31, 2008, Alaris completed the acquisition (the "Acquisition") of Alaris Income Growth Fund L.P. ("Alaris L.P."). Alaris has continued the business and operations of Alaris L.P. The Acquisition has been accounted for as a reverse take-over with Alaris L.P. being considered the acquiring entity for accounting purposes.

As a result of the Acquisition, there were several significant charges recorded in the financial statements during the period. For the year ended December 31, 2008, Alaris recorded non-cash stock based compensation expenses of $8.2 million that included: $7.9 million as a result of the difference in the exercise price and the fair value of management options that were granted and exercised prior to the Acquisition; and another $260,000 representing the fair value of outstanding stock options and amortization of the accounting cost of the Corporation's Restricted Share Unit Plan. As well, the Corporation incurred $491,000 of due diligence costs relating to the Acquisition that were expensed in the year. Both of these items are either non-cash or non-recurring expenses and have been added back to EBITDA to present a normalized result. The Corporation also recorded a future income tax expense of $1.7 million for the year ended December 31, 2008 most of which represents the timing difference between the book value and the tax value of its two royalty financings (End of the Roll and MEDIchair).



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of Net Income to Year ending Year ending
EBITDA (thousands) Dec 31, 2008 Dec 31, 2007
----------------------------------------------------------------------------
Net Income (Loss) $ (3,052) $ 1,844
Adjustments to Net Income:
Amortization 235 239
Interest 8,881 5,420
Income tax timing difference expense 1,696 -
EBITDA $ 7,760 $ 7,503
Normalizing Adjustments:
Non-cash stock-based compensation 7,933 -
Tax and financial diligence costs 491 -
Normalized EBITDA $ 16,184 $ 7,503
----------------------------------------------------------------------------
----------------------------------------------------------------------------


"We are very pleased to be reporting our first annual financial statements as a public company," said Steve King, President and CEO. "Due to the nature of the distributions from our Finance Group being set for 12 months in advance, our results are in line with our expectations. We will continue to pass on this visibility to our shareholders in the future."

Outlook

Alaris' agreements with the Finance Group Members provide for payments estimated to provide the Corporation currently with approximately $17.5 million of revenues on an annual basis. General and administrative expenses are expected to increase as a result of public company costs and are estimated at $2.2 million annually. Alaris' senior debt facility is fully drawn to $25 million and the interest rate on that debt was 6.5% at December 31, 2008 (subsequently reduced to 5.5% at March 11, 2009). $6.5 million of subordinated debt is outstanding with an annual interest rate of 13%. Cash requirements after net income are expected to be minimal, as current capital expenditures will consist of office furniture and computer equipment. In each month from August through December 2008, and again in January and February 2009, the Corporation declared monthly dividends of $0.12 per voting and non-voting common share.

"Our revenue outlook for 2009 will include a drop in revenues from current operations of approximately 8% due to a decline in 2009 distributions from Lower Mainland Steel ("LMS"). LMS experienced a dramatic shift in their business late in their fiscal 2008 year that included projects being cancelled and others being significantly delayed due to the unprecedented economic conditions that formed at that time. The end result was that LMS incurred material bad debt expenses for the first time in its operating history that decreased its reported gross profit. Beyond LMS, the other three members of the Finance Group continue to perform well, even in these difficult times and we expect increased contributions from each of them compared to 2008."

For 2010, Alaris again expects typical increases in its royalties and distributions from each of Life Mark Health, MEDIchair and End of the Roll. However, LMS will see a significant drop in gross profit compared to the previous year. The decline is based on both reduced volumes caused by the economic environment and credit crisis as well as by temporarily depressed margins that were caused by high priced inventory that resulted from cancelled projects. The net result of these two factors on LMS' operations will be a possible decline in gross profits of as much as 80% on their September 30, 2009 results which will result in a decrease to LMS' distributions to Alaris in 2010.

Dividend Reduction

Given the current economic condition, the Board of Directors of Alaris has determined to reduce the Company's monthly dividend to $0.07 per common share (a "Common Share") from $0.12 per common share, beginning with the March 2009 monthly dividend. This decision will preserve approximately $4.5 million in 2009.

"We recognize the importance of our dividend to our shareholders but we believe that this precautionary action is appropriate at this time given the unprecedented economic conditions." Alaris President and CEO Steve King said. "In the current environment, we are seeing numerous opportunities for growth, but in order to grow, we feel that making this conservative, proactive decision is prudent in order to allow us to move forward with our business plan." said King.

"While results for 2009 are being conservatively forecast to account for the current economic conditions, the longer term outlook for LMS is very strong. LMS is expected to benefit from the British Columbia provincial government's recent budget which included an announcement of $14 billion of new infrastructure projects to be completed over the next three years. Several of these projects have gone to tender within the past few weeks" said King. "In addition, profit margins are expected to improve over the next few months once the higher priced inventory has been installed in current projects."

"Going forward, the marketplace for new investments is positive. Growth opportunities with strong, profitable companies are numerous and the potential financing terms are more attractive than just 12 months ago." King said. "We believe that the nature and structure of our financings provides a very defensive platform for our shareholders," said Mr. King. Alaris plans to continue to seek out and enter into additional financing structures accretive to the Corporation's earnings per share in the current Finance Group and other private businesses.

The Consolidated Balance Sheet, Statement of Operations and Deficit 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.

Alaris will be holding a conference call today, March 13th, at 12:00pm EST. Steve King and Darren Driscoll, Chief Executive Officer and Chief Financial Officer respectively, will be discussing today's press release in detail. There will be an opportunity for Q & A following their discussions.

The call in number is 1-866-223-7781 or 1-416-340-8018. If you are unable to call in at that time the call will be available for instant playback until March 19th by dialing 1-800-408-3053 or 1-416-695-5800. The call will also be posted to www.alarisroyalty.com by Tuesday March 17th.

About the Corporation:

Alaris provides alternative financing for a diversified group of private businesses (the "Finance Group") in exchange for royalties or distributions from the Finance Group, with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. Royalties or distributions from the Finance Group are structured as a percentage of a "top line" financial performance measure such as gross margin and same-store sales and rank in priority to the owners' common equity position.

Non-GAAP Measures

The terms EBITDA and normalized EBITDA (collectively the "Non-GAAP Measures"), are financial measures used in this news release that are not standard measures under Canadian generally accepted accounting principles ("GAAP"). The Corporation's method of calculating Non-GAAP Measures may differ from the methods used by other issuers. Therefore, the Corporations Non-GAAP Measures may not be comparable to similar measures presented by other issuers.

EBITDA refers to net earnings (loss) determined in accordance with GAAP, 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. The Corporation has provided a reconciliation of net income (loss) to EBITDA in this news release.

Normalized EBITDA refers to EBITDA excluding items that are non-recurring in nature. Items include expenses incurred in connection with the Acquisition and include non-cash stock option and other transaction related costs.

These Non-GAAP measures 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. 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 and business prospects and opportunities of the Corporation and the Finance Group, the general economy, the amount and timing of the payment of dividends by the Corporation, the future financial position or results of the Corporation, business strategy, proposed acquisitions, growth opportunities, budgets, litigation, projected costs and plans and objectives of or involving the Corporation or the Finance Group. 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 Finance Group in 2009 and the anticipated impact on the dividends and distributions to be received by the Corporation in 2010. In addition to the general factors outlined above, the forward-looking statements relating to LMS assume that LMS will benefit from the British Columbia provincial government's announcement of $14 billion of new infrastructure projects and higher priced inventory being installed in future construction projects, and the forward-looking statements relating to the other Finance Group Members assume that such Finance Group Members will continue to have favourable operating results.

There can be no assurance that the 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 Finance Group 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 Finance Group; reliance on key personnel; general economic conditions; failure to complete or realize the anticipated benefit of Alaris' financing arrangements with the Finance Group; limited diversification of Alaris' financing arrangements with the Finance Group; management of future growth; availability of future financing; competition; government regulations; leverage and restrictive covenants under credit facilities; the ability of a Finance Group Member to terminate the agreements pursuant to which Alaris has invested in such Finance Group Member; risk relating to the Finance Group and their businesses; unpredictability and potential volatility of the trading price of Common Shares; fluctuations of dividends; restrictions on the potential growth of Alaris as a consequence of the payment by Alaris of substantially all of its operating cash flow; income tax related risk; future sales of Common Shares by significant shareholders; ability to recover from a Finance Group Member for defaults under the agreements pursuant to which Alaris has invested in such Finance Group Member; conflicts of interest; dilution; and liquidity of Common Shares. 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.



ALARIS ROYALTY CORP.
Consolidated Balance Sheets
Unaudited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31,
------------------------------
2008 2007
----------------------------------------------------------------------------
Assets
Current assets:
Cash $ 1,743,936 $ 1,599,339
Accounts receivable 11,307 20,207
Prepaid expenses 35,417 -
Future income taxes (note 10) 3,649,476 -
Investment tax credit receivable (note 10) 150,798 -
----------------------------------------------------------------------------
5,590,934 1,619,546

Investment tax credit receivable (note 10) 6,441,259 -
Future income taxes (note 10) 25,528,693 -
Equipment (note 4) 90,458 141,883

Investments (note 3)
Preferred LP units 98,124,642 98,124,642
Intangible assets 13,243,384 13,416,616
----------------------------------------------------------------------------
111,368,026 111,541,258

----------------------------------------------------------------------------
$ 149,019,370 $ 113,302,687
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities and Shareholders'
Equity/(Deficit)
Current liabilities:
Accounts payable and accrued liabilities $ 443,553 $ 695,526
Dividends payable 1,094,620 -
Future income taxes (note 10) 42,932 -
Bank indebtedness (note 5) - 25,000,000
Subordinated debt (note 5) 6,500,000 90,000,000
----------------------------------------------------------------------------
8,081,105 115,695,526

Bank indebtedness (note 5) 25,000,000 -
Future income taxes (note 10) 3,136,988 -
Deferred credit (note 10) 27,497,912 -

Shareholders' equity/(deficit):
Shareholder's capital (note 6) 98,278,747 150,000
Contributed surplus 264,472 -
Deficit (13,239,854) (2,542,839)
----------------------------------------------------------------------------
85,303,365 (2,392,839)
Commitments (note 13)
Subsequent event (note 14)

----------------------------------------------------------------------------
$ 149,019,370 $ 113,302,687
----------------------------------------------------------------------------
----------------------------------------------------------------------------

ALARIS ROYALTY CORP.
Consolidated Statements of Operations and Deficit

Unaudited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Year ended
December 31,
------------------------------
2008 2007
----------------------------------------------------------------------------

Revenues:
Royalties and distributions $ 18,934,364 $ 11,368,381
Interest and other 96,380 18,091
----------------------------------------------------------------------------
19,030,744 11,386,472

Expenses:
Interest 8,881,023 5,419,619
Non-cash stock based compensation (Note 8) 8,232,105 -
Stock based compensation (Note 8) 102,306 -
Salaries and benefits 994,676 766,050
Legal and accounting fees 664,922 523,572
Corporate and office 520,047 306,881
Restructuring and financing (Note 1) 491,032 -
Financing 265,000 2,102,500
Depreciation and amortization 234,896 238,416
Write-off investments - 185,802
----------------------------------------------------------------------------
20,386,007 9,542,840

Net Income (Loss) before taxes (1,355,263) 1,843,642

Future income tax expense (note 10) 1,696,676 -

----------------------------------------------------------------------------
Net Income (Loss) and other
comprehensive income for the period (3,051,939) 1,843,642

Deficit, beginning of period (2,542,839) (2,826,481)

Distributions to unitholders (note 7) (2,166,000) (1,560,000)

Dividends to shareholders (note 7) (5,479,076) -

----------------------------------------------------------------------------
Deficit, end of period $ (13,239,854) $ (2,542,839)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings per share, basic $ (0.65) $ 1.23
Earnings per share, fully diluted $ (0.65) $ 1.23

Weighted average shares outstanding, basic 4,691,024 1,500,000

Weighted average shares outstanding, fully
diluted 4,691,024 1,500,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------


ALARIS ROYALTY CORP.
Consolidated Statements of Cash Flows

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Unaudited
Year ended
December 31,
------------------------------
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cash provided by (used in):

Operations:
Net Income (Loss) for the period $ (3,051,939) $ 1,843,642
Add non-cash items:
Depreciation and amortization 234,896 238,416
Write-off investments, deal costs - 185,802
Stock based compensation (note 8) 8,232,105 -
Income tax expense 1,696,676 -
----------------------------------------------------------------------------
7,111,738 2,267,860

Change in non-cash working capital (278,512) (1,789,105)
----------------------------------------------------------------------------
6,833,226 478,755

Investing:
Change in non-cash working capital - (278,972)
Purchase of investments - (51,156,995)
Disposals - 8,893,100
Purchase of equipment (10,239) (2,682)
----------------------------------------------------------------------------
(10,239) (42,545,549)

Financing:
Distributions to unitholders (2,166,000) (1,560,000)
Dividends to shareholders (4,384,456) -
New share capital 51,730,998 -
Proceeds from debt - 131,850,000
Repayment of debt (51,500,000) (87,386,810)
Repurchase odd-lot shares (358,932) -
----------------------------------------------------------------------------
(6,678,390) 42,903,190

----------------------------------------------------------------------------
Increase in cash 144,597 836,396

Cash, beginning of period 1,599,339 762,943

----------------------------------------------------------------------------
Cash, end of period $ 1,743,936 $ 1,599,339
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Contact Information

  • Alaris Royalty Corp.
    Curtis Krawetz
    Manager, Investor Relations
    (403) 221-7305
    Website: www.alarisroyalty.com