Grenville Strategic Royalty Corp.
TSX VENTURE : GRC

Grenville Strategic Royalty Corp.

November 03, 2014 16:33 ET

Grenville Strategic Royalty Announces 2014 Third Quarter Results

Board Approves Outlook and Implementation of Dividend Strategy

TORONTO, ONTARIO--(Marketwired - Nov. 3, 2014) - Grenville Strategic Royalty Corp. (TSX VENTURE:GRC) ("Grenville" or the "Company") today announced its financial and operating results for the three and nine months ended September 30, 2014. Financial references are in Canadian dollars unless otherwise specified.

Third Quarter 2014 Highlights

  • Revenues of $905,000 for the three months ended September 30, 2014 (Q3 2014)
  • Net Income of $529,000
  • Adjusted EBITDA1 of $542,000
  • Royalty agreements acquired were $9.5 million for Q3 2014, bringing the aggregate value of acquired royalties since inception to the end of Q3 2014 to $20.1 million
  • Average royalty payment per million invested1 was $243,000 for the month of September
  • Acquired additional investments in royalty agreements of $4 million subsequent to the end of the period, bring royalty agreements acquired since inception to $24.1 million

"Our growing portfolio of royalty investments generated strong revenue, Net Income and Adjusted EBITDA1 during the quarter," said William (Bill) R. Tharp, President and Chief Executive Officer of Grenville. "This is a milestone quarter for the Company, with material improvements to the diversification of the portfolio and corresponding growth in both investment pace and individual deal size. As a result of these positive results, rapidly increasing revenues and most importantly, material Adjusted EBITDA1, along with strong future growth prospects, the Company is now focused on delivering its next significant milestone, the design and implementation of a plan to return capital to shareholders in the form of a regular dividend. With a solid foundation set in place, the Company will continue to build on its successes while managing the business to achieve our target average royalty payment per million invested1 of $250,000."

Financial Highlights for the Third Quarter of 2014

Three months ended
September 30, 2014
Nine months ended
September 30, 2014
Revenues $ 905,384 $ 1,409,546
Profit (Loss) after income taxes 528,558 (3,377,297)
Basic and diluted earnings (loss) per share 0.0089 (0.0734)
Adjusted EBITDA1 541,579 551,810
Weighted basic average number of shares outstanding 59,302,462 45,996,104
Royalty agreements acquired in period 9,540,053 18,210,768

REVENUES

Revenues were $905,000 and $1,410,000 for the three and nine months ended September 30, 2014, respectively. Royalty payment income represented 93% and 91% of total revenue during the respective periods. The improvement, compared to revenue of $52,000 and royalty payment income of 53% of total revenue for the period from July 29, 2013 to December 31, 2013, is primarily due to additional royalty agreements acquired during 2014 as the Company scales its portfolio.

OPERATING EXPENSE

Total operating expenses were $32,000 and $4,442,000 for the three and nine months ended September 30, 2014, respectively. Operating expenses for the three month period were impacted by an unrealized foreign exchange gain of $361,000 resulting from the translation of royalty agreements denominated in US dollars, and a share-based payment expense of $28,000. Net of foreign exchange gains and share based expenses, operating expenses were $377,000 for the three month period, or approximately $126,000 per month, which is in line with management's expectations. Operating expenses for the nine-month period included $3,636,000 in expenses related to the reverse take-over, completed in February 2014 (the "RTO"), $248,000 in unrealized foreign exchange gain and $186,000 in share-based payment expense. Net of these three items, operating expenses were $867,000 for the period. Operating expenses for the period from July 29, 2013 to December 31, 2013 were $161,000.

PROFIT AFTER INCOME TAXES

Profit after income taxes was $528,559 (or $0.01 per basic and diluted share) for the three months ended September 30, 2014 compared to a loss of $108,856 (($0.01) per basic and diluted share) for the period July 29, 2013 to December 31, 2013. Profit in the quarter was attributable to the revenues generated from the growing portfolio of investments, as well $373,302 in unrealized foreign exchange gain and the $27,959 share-based payment expense mentioned above.

ADJUSTED EBITDA1

Adjusted EBITDA was $541,579 and $551,810 for the three months and nine months ended September 30, 2014, respectively, compared to a loss of $23,844 for the period from July 29, 2013 to December 31, 2013. Adjusted EBITDA margin was 60% for the quarter.

ASSETS

As at September 30, 2014 As at December 31, 2013
Cash and cash equivalents $ 13,392,405 $ 593,417
Royalty agreements acquired and loan portfolio 20,216,722 1,890,169
Total assets 35,262,794 3,176,891

AVERAGE ROYALTY PAYMENT PER MILLION INVESTED1

The average royalty payment per million invested for the month of September 2014 was $243,451 versus the Company's target of $250,000 for the month. Management believes that as the Company's portfolio achieves a greater level of diversification, monthly results will become more closely aligned with this target. Management expects the average royalty to increase in the latter quarter of the year as seasonally adjusted revenue are generally higher than in the earlier part of the year for most portfolio companies. Current results are consistent with management's expectations at this stage of the financial year.

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ROLLING THREE MONTH AVERAGE INVESTMENT PER MONTH1

As of October 31, 2014, the rolling three month average investment per month was $3,805,000.

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ROLLING THREE MONTH AVERAGE INVESTMENT PER TRANSACTION1

As of October 31, 2014, the rolling three month average investment per transaction was $1,680,000.

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  1. Please refer to the Company's management's discussion and analysis for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS.

OUTLOOK

Grenville continues to experience strong deal flow through its robust network. Current volatility in the broader markets has the potential to provide the Company with enhanced deal flow, as small and medium sized enterprises often face difficulty in accessing growth capital in challenging equity markets.

Since its inception, Grenville has built a diversified portfolio of approximately $24 million of invested capital across 22 investments in 18 portfolio companies. Management's target in building a balanced portfolio is to achieve a rate of $250,000 of annual revenue per $1,000,000 of invested capital. Based on the existing investments, the portfolio has reached a scale at which it is generating stable income and Adjusted EBITDA, as designed. Additionally, as provided in the Rolling Three Month Average Investment Per Month and Per Transaction summaries above, management believes we can maintain, or exceed, the pace and rate of capital deployment achieved to date.

DIVIDEND STRATEGY

Based on this performance, the Company is now focused on the design and implementation of a plan to return capital to shareholders in the form of a regular dividend. The quantum and timing of such dividend will be determined by the Board following a review of the Company's cash flow, earnings, working capital requirements, financial position, future prospects and other factors deemed relevant by the Board. The Board believes that the transition to a growth-and-dividend company is supported by the underlying strength of the Company's business and clearly demonstrates the power of the Company's royalty-based business model.

Grenville's scalable business model provides the capability to acquire an expanding portfolio of income-producing royalties. This expansion, combined with the Company's modest corporate cost structure, generates strong free cash flow available for distribution, which the Company believes should enable it to fund a meaningful dividend strategy.

  1. Please refer to the Company's management's discussion and analysis for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS.

About Grenville

Grenville is a Toronto-based company that was formed to provide royalty-based finance solutions by acquiring revenue streams generated by growing industrial and technology businesses. Grenville has identified a large and underserviced finance market for companies generating up to $50 million in revenue, many of which are well managed and generating improving cash flow, but face difficult financing hurdles from traditional debt and equity markets. The non-dilutive royalty financing structure offered by Grenville can be complementary to other financing alternatives or be simple stand-alone capital. Capital can be used in a variety of ways: from working capital needs, to funding acquisitions, buying out minority partners, or just adding a financing alternative to the range of existing capital solutions. The application of Grenville's royalty financing structure into sectors not traditionally serviced by royalty companies represents a new and innovative financing model - Capital Simplified - that has already attracted a considerable number of opportunities with attractive potential returns.

Forward-Looking Information and Statements

This press release contains certain "forward-looking information" within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking information and statements are not representative of historical facts or information or current condition, but instead represent only Grenville's beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of Grenville's control. Generally, such forward-looking information or statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or may contain statements that certain actions, events or results "may", "could", "would", "might" or "will be taken, "will continue", "will occur" or "will be achieved". The forward-looking information contained herein may include, but is not limited to, information with respect to: prospective financial performance; expenses and operations; anticipated cash needs and need for additional financing; anticipated funding sources; future growth plans; royalty acquisition targets and proposed or completed royalty transactions; estimated operating costs; estimated market drivers and demand; business prospects and strategy; anticipated trends and challenges in Grenville's business and the markets in which it operates; the amount and timing of the payment of dividends by Grenville; and Grenville's financial position. By identifying such information and statements in this manner, Grenville is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Grenville to be materially different from those expressed or implied by such information and statements. An investment in securities of Grenville is speculative and subject to a number of risks including, without limitation, risks relating to: the need for additional financing; the relative speculative and illiquid nature of an investment in Grenville; Grenville's lack of operating history; Grenville's ability to generate sufficient revenues; Grenville's ability to manage future growth; the limited diversification in Grenville's existing investments; dependence on the operations, assets and financial health of investee companies; limited ability to exercise control or direction over investee companies; potential defaults by investee companies and the unsecured nature of Grenville's investments; Grenville's ability to enforce on any default by an investee company; competition with other investment entities; tax matters; Grenville's ability to pay dividends in the future and the timing and amount of those dividends; reliance on key personnel, particularly Grenville's founders; dilution of shareholders' interest through future financings; and general economic and political conditions. Although Grenville has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and statements, there may be other factors that cause results not to be as anticipated, estimated or intended.

In connection with the forward-looking information and forward-looking statements contained in this document, Grenville has made certain assumptions. Assumptions about the performance of the Canadian and U.S. economies over the next 24 months and how that will affect Grenville's business and its ability to identify and close new opportunities with new investees are material factors that Grenville considered when setting its strategic priorities and objectives, and its outlook for its business. Key assumptions include, but are not limited to: assumptions that the Canadian and U.S. economies will continue to grow moderately over the next 12 to 24 months; that interest rates will not increase dramatically over the next 12 to 24 months; that Grenville's existing investees will continue to make royalty payments to Grenville as and when required; that the businesses of Grenville's investees will not experience material negative results; that Grenville will continue to grow its portfolio in a manner similar to what has already been established; that tax rates and tax laws will not change significantly in Canada and the U.S.; that more small to medium private and public companies will continue to require access to alternative sources of capital that Grenville will have the ability to raise required equity and/or debt financing on acceptable terms; and that Grenville will have sufficient free cash flow to pay dividends. Grenville has also assumed that access to the capital markets will remain relatively stable, that the capital markets will perform with normal levels of volatility and that the Canadian dollar will not have a high amount of volatility relative to the U.S. dollar. In determining expectations for economic growth, Grenville primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies.

Although Grenville believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements.

For additional information with respect to these risks, uncertainties and assumptions, please refer to the "Risk Factors" section of Grenville's annual information form dated April 21, 2014 and the other public filings of Grenville available on SEDAR at www.sedar.com. The forward-looking information contained in this press release is made as of the date hereof, and Grenville does not undertake to update any forward-looking information that is contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward looking information and statements attributable to Grenville or persons acting on its behalf is expressly qualified in its entirety by this notice.

Caution Regarding Non-IFRS Financial Measures - Grenville uses certain measures in this press release which do not have a standardized meaning as prescribed by International Financial Reporting Standards ("IFRS") and are unlikely to be comparable to similar measures presented by other issuers. These non-IFRS measures, including adjusted EBITDA, average royalty payment per million investment, rolling three month average investment per transaction and rolling three month average investment per month have been presented in this press release in order to provide shareholders and potential investors with additional information regarding Grenville, but should not be considered in isolation or as a substitute for, or more meaningful than, measures prepared in accordance with IFRS, such as net income (loss) or cash flow from operating activities. Please refer to the Company's Management's Discussion and Analysis as at and for the three months ended September 30, 2014 for definitions and reconciliations of these non-IFRS measures to measures prescribed by IFRS.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Grenville Strategic Royalty Corp.
    William (Bill) R. Tharp
    President and Chief Executive Officer
    (416) 777-0383