Grenville Strategic Royalty (GRC-V) Nov 4th 2014 has released its financial and operating results for the three and nine months ended Sept. 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 Ebitba1
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.
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.
ROLLING THREE MONTH AVERAGE INVESTMENT PER MONTH1 As of October 31, 2014, the rolling three month average investment per month was $3,805,000. ROLLING THREE MONTH AVERAGE INVESTMENT PER TRANSACTION1 As of October 31, 2014, the rolling three month average investment per transaction was $1,680,000.
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. |
