Grenville Strategic Royalty Announces 2018 First Quarter Results

TORONTO, May 03, 2018 (GLOBE NEWSWIRE) -- Grenville Strategic Royalty Corp. (TSXV:GRC) (“Grenville” or the “Company”) today announced its financial and operating results for the three-month period ended March 31, 2018. Financial references are in Canadian dollars unless otherwise specified.

2018 First Quarter Financial Highlights

• Royalty Payment and Interest Income of $1,039,000
• Realized gain on Contract Buyout of $125,000
• Revenue of $1,844,000
• Adjusted EBITDA⁽¹⁾ of $115,000
• Free Cash Flow⁽¹⁾ of $(133,000)

Operational Highlights

• Announced Robb McLarty as the new Chief Investment Officer and Acting Chief Executive of Grenville and the resignation of Steve Parry from the Board of Directors
• Entered into an arrangement agreement with LOGiQ Asset Management Inc. (“LOGiQ”) for a reverse takeover of LOGiQ.  Pending the requisite shareholder approvals, court approvals and closing conditions, Grenville shareholders would hold approximately 67% of the combined company and LOGiQ shareholders 33%
• Closed three new investments since January 1, 2018, consisting of $950,000 in Solar Brokers Canada Corp. (“Solar Brokers”), $800,000 in Dionymed Holdings Inc.(“DionyMed”), and US$875,000 in Stability Healthcare Inc. (“Stability”)
• Received a Contract Buyout of $250,000, plus royalties earned, on the $125,000 investment in Fixt, bringing the total return to $277,000 for a cash-on-cash return of 2.21 within ten months
• Converted a $1 million royalty agreement in WatchIt! to 10 million shares in Inner Spirit at a price of $0.10 per share
• Received 80,000 warrants in DionyMed and granted the right to earn up to 399,424 common share purchase warrants in Boardwalktech in relation to consulting services, both of which were subsequent to the end of the period

“The transaction with LOGiQ provides us with immediate financial scale that allows us to leverage our existing deal sourcing platform to continue the growth of our portfolio” said Robb McLarty, Acting Chief Executive Officer of Grenville. “The three investments made since the beginning of the year reflect what we seek when sourcing investments. Each company has a strong customer value proposition, is capital efficient, and is led by a proven management team with a significant ownership stake. They are companies of scale and growth, cumulatively representing more than $69 million in run-rate revenue.  Looking forward, we will continue to source and close investments in companies like Solar Brokers, DionyMed and Stability.” 

Financial Highlights

1. EBITDA, Adjusted EBITDA and Free Cash Flow are non-IFRS measures. Refer to section Definition of Non-IFRS Measures for further explanation and definitions.

Revenues
Revenues were $1,844,000 for the three-month period (Q1 2018) ended March 31, 2018, compared to $(3,442,000) for the corresponding period in 2017. Like previous reporting periods, certain non-cash items are recognized in revenue in accordance with IFRS 9.

Revenues were positively impacted by the $125,000 realized gain from the buyout of the Fixt investment. Revenues were also positively impacted by net non-cash items of $639,000 in Q1 2018 compared to a negative impact of $4,793,000 for the corresponding period in 2017. The non-cash amount relates to $410,000 of an unrealized gain in writing-up the fair value of royalty agreements acquired and promissory notes receivable and $94,000 of an unrealized foreign exchange gain. These improvements were partially offset by $182,000 for the unrealized loss in the change in the fair value of the shares held in Lattice Biologics Ltd.

Royalty Payment Income and Interest and Fee Income Earned
Royalty payment income plus interest and fee income earned were $1,039,000 for Q1 2018, compared to $1,334,000 for the corresponding period in 2017. The change was primarily due to $269,000 of income recognized on the Aquam investment during the three-month period ended March 31, 2017 that was bought-out in April 2017.

Management believes that the portfolio will continue to contribute Free Cash Flow⁽¹⁾ on a regular basis as it matures.

Operating Expense
Total operating expenses were $1,205,000 in Q1 2018, compared to $1,251,000 for the corresponding period in 2017. The improvement was due to lower salary costs of approximately $72,500 due to two fewer employees, lower rent of $18,500 as a result of moving offices, lower staff training costs of $17,000 and an expense incurred in Q1 2017 of $400,000 related to overclaimed HST input credits. These improvements were partially offset by a $312,500 restructuring cost for the termination of the employment agreement for a managing director of the Company and $136,500 of professional fees incurred for the transaction to combine with LOGiQ.

Adjusted EBITDA⁽¹⁾
Adjusted EBITDA⁽¹⁾ was $116,000 for Q1 2018, compared to $157,000 for the corresponding period in 2017. The variance was due to a number of factors but the insignificant change demonstrates the sustainability of the company’s performance even though royalty payment income, the core revenue item fell by $295,000.   

Free Cash Flow⁽¹⁾
Free Cash Flow⁽¹⁾ was $(133,000) for Q1 2018, compared to $52,000 for the corresponding period in 2017. The change was due to $103,000 year-end related audit and professional fees paid and the expenses paid for professional fees relating to the transaction to combine with LOGiQ. 

Profit (Loss) After Taxes
Profit after taxes was $196,000 for Q1 2018, compared to $(3,792,000) for the corresponding periods in 2017. The improvement was primarily due to $4,154,000 improvement in non-cash items (unrealized foreign exchange gains and losses, unrealized gains and losses from the changes in the fair value of royalty and equity investments and realized loss from investments written-off) between the periods.

Outlook
The Company has invested approximately $72 million of capital in 43 portfolio companies, generated Adjusted EBITDA⁽¹⁾ of $20.3 million since inception and generated free cash flow⁽¹⁾ of $12.3 million since July 2014. The core of the portfolio has reached a scale at which it is generating positive Adjusted EBITDA⁽¹⁾ and Free Cash Flow⁽¹⁾. The Company has over time developed and expanded the royalty model to include equity investments as part of its offering. The Company will in select cases where management believes the balance of risk and return warrant it, blend royalties with an equity kicker where management believe it may lead to better returns for the Company and ultimately our shareholders.

Grenville’s royalty agreements with its portfolio companies generated Adjusted EBITDA⁽¹⁾ to the Company of approximately $0.1 million for Q1 2017. As of May 3, 2018, the Company estimates that the royalty payment income and interest earned for April 2018 will be $0.37 million. Operating expenses (excluding share-based compensation, restructuring cost, transactions costs for the LOGiQ transaction and depreciation) for Q1 2018 were approximately $0.225 million per month. Operating expenses, excluding a restructuring cost in relation to Steve Parry’s move to an advisory role, are estimated to be in the range of $0.2 million to $0.25 million per month for the three months ending June 30, 2018. The Company’s cash position at May 3, 2018 is approximately $5.1 million.

Grenville’s financial statements and management’s discussion and analysis for the three-month period ended March 31, 2018, will be filed today on SEDAR at www.sedar.com and also available on Grenville’s website at www.grenvillesrc.com.

⁽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.

Conference Call Details
Grenville will host a conference call to discuss these results at 8:00 a.m. Eastern Time, Friday, May 4, 2018. Participants should call (647) 427-2311 or (866) 521-4909 and ask an operator for the Grenville earnings call. Please dial in 10 minutes prior to the call to secure a line. A replay will be available shortly after the call. To access the replay, please dial (416) 621-4642 or (800) 585-8367 and enter access code 7288573. The replay recording will be available until 11:59 p.m. Eastern Time, May 17, 2018.

An audio recording of the conference call will be also available on the investors’ page of Grenville’s website at www.grenvillesrc.com.

About Grenville
Based in Toronto, Grenville Strategic Royalty Corp. makes growth-oriented investments in established businesses with revenues of up to $50 million. Grenville generates revenues from royalty payments, buyouts from contracts and equity returns. The royalty financing structure offered by Grenville competes directly with traditional equity to meet the long-term financing needs of companies on more attractive commercial terms.

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 forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company’s control. Generally, such forward-looking information or forward-looking 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; including the Company’s opinion regarding the current and future performance of its portfolio, 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 the Company’s business and the markets in which it operates; the amount and timing of the payment of dividends by the Company; and the Company’s financial position. By identifying such information and statements in this manner, the Company 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 the Company to be materially different from those expressed or implied by such information and statements.

An investment in securities of the Company 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 the Company; the volatility of the Company’s share price; the Company’s limited operating history; the Company's ability to generate sufficient revenues; the Company's ability to manage future growth; the limited diversification in the Company's existing investments; the Company's ability to negotiate additional royalty purchases from new investee companies; the Company's dependence on the operations, assets and financial health of its investee companies; the Company's limited ability to exercise control or direction over investee companies; potential defaults by investee companies and the unsecured nature of the Company's investments; the Company's ability to enforce on any default by an investee company; competition with other investment entities; tax matters, including the potential impact of the Foreign Account Tax Compliance Act on the Company; the potential impact of the Company being classified as a Passive Foreign Investment Company ("PFIC"); the Company's ability to pay dividends in the future and the timing and amount of those dividends; reliance on key personnel, particularly the Company's founders; dilution of shareholders’ interest through future financings; and general economic and political conditions; as well as the risks discussed under the heading "Risk Factors" on pages 17 to 28 of the Annual Information Form of the Company dated April 27, 2018 and the risks discussed herein. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and forward-looking 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 press release, the Company 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 the Company's business and its ability to identify and close new opportunities with new investees are material factors that the Company 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 relevant to the Company’s investment focus will remain relatively stable over the next 12 to 24 months; that interest rates will not increase dramatically over the next 12 to 24 months; that the Company's existing investees will continue to make royalty payments to the Company as and when required; that the businesses of the Company's investees will not experience material negative results; that the Company 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 the Company will have the ability to raise required equity and/or debt financing on acceptable terms; and that the Company will have sufficient free cash flow to pay dividends. The Company 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, the Company primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies. Although the Company 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.

The forward-looking information and forward-looking statements contained in this PRESS RELEASE are made as of the date of this PRESS RELEASE, and the Company does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward- looking information and statements attributable to the Company or persons acting on its behalf is expressly qualified in its entirety by this notice.

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.

For further information, please contact:

Grenville Strategic Royalty Corp.:
Donnacha Rahill
Chief Financial Officer
Tel: (416) 477-2601