Flow Capital Announces Q3 2021 Financial Results

Recurring Revenues from Royalties and Interest of $ 1,183,000; YTD $4,485,000 — YoY growth of 16.9% – 

TORONTO, Ontario, November 11, 2021 – Flow Capital Corp. (TSXV: FW) (“Flow Capital”) announces its unaudited financial and operating results for the quarter September 30, 2021 (“Q3 2021”). Financial references are in Canadian dollars unless otherwise specified.

Q3 2021 Performance Highlights

  • Free Cash Flow (FCF) of $4,451,015 in Q3 2021, a 4X growth over $1,046,986 in Q3 2020. YTD FCF of $9,365,619.

  • Total revenue under IFRS of $(179,095) in Q3 2021; YTD revenue of $7,083,979; a nominal year-over-year (YoY) growth of 4.7%.

  • Net loss of $(1,040,382) in Q3 2021, compared to $1,845,528 in Q3 2020. YTD net income of $3,333,467.

  • EBITDA of $(844,000) in Q3 2021; compared to $3,346,929 in Q3 2020. YTD EBITDA of $4,953,576 till Q3 2021, compared to $4,027,865 till Q3 2020.

  • Book value of approximately $0.67 per share; YTD growth of 20.6% and YoY growth of 22.5%.

In Q3 2021, Flow Capital continued the strong trend of increasing transaction activity witnessed earlier in the year, closing over $14,900,000 in transactions during the quarter. In the nine- months ended September 30, 2021, Flow Capital has closed over $35,000,000 in transaction value, including five new loan investments ($18,000,000), five royalty repayments ($12,100,000), equity sales ($5,500,000), some partial redemptions and recoveries from previously distressed investments.

The significant increase in transaction throughput in 2021 has accelerated the transition in Flow Capital’s investment portfolio, from the legacy royalty-oriented portfolio to a predominantly loan- centric portfolio. This reflects our focus on moving down the risk-curve into later stage and typically larger and secured investments, layered with additional upside potential through the warrants and/or exit-fee structures in all our recent deals.

Q3 was unusual as we experienced the impact of a significant number of repayments, primarily of legacy royalties, that were clustered together in a short period of time. Specifically, most of the buyouts and repayment we experienced this year were clustered in Q2 and early Q3. The impact of an influx of repaid capital, combined with our measured and conservative approach to new investment, had a temporary negative impact on recurring revenue.

However, given the strength of our pipeline and the high quality of the opportunities we are seeing, we are quickly redeploying our capital. “The effort we put into improving our origination efforts in 2019 and 2020 are paying off today”, said Alex Baluta, CEO of Flow Capital. “We expect this drop in recurring revenue to reverse in Q4 2021 as new investments replace the earlier exits.”

“Our Q3 2021 performance reflects gains from a combination of repayments in royalty investments and sales of equity positions, steady cash flow from recurring revenue and sustained results from our efforts to drive operating efficiency. 

We are witnessing increasing momentum in capital deployment into more deals with equity upside. We have invested in building the team and on technology that has made our platform more scalable. We have a strong pipeline of new investment opportunities and remain focused on deal origination to expand our active investment portfolio, to drive growth in recurring revenue and free cash flow.” said Alex Baluta, Chief Executive Officer of Flow Capital.

Further details below. 

Revenues

Total revenue for the three-month period ended September 30, 2021 was $(179,095), a 104.7% decrease from $3,839,196 in the three-month period ended September 30, 2020. Royalty and loan payment income for the three-month period ended September 30, 2021 was $1,182,866 representing a 26.6% decrease from the $1,610,792, earned in the three-month period ended September 30, 2020.

Of the $1,182,866 royalty and loan payment income earned during the three-month period ended September 30, 2021, $699,047 was contributed by interest earned from new investments acquired in the last twelve months, $444,025 from royalty payment income from the existing portfolio and $(46,363) on account of loan amortization adjustments. The increase in royalty and loan income was offset by a reduction due to royalty buyouts and two investments not accruing any income due to non-payment, in the last twelve months.

Realized gain from sale of investments was $4,837,771 for the three-month period ended September 30, 2021 compared to $250,000 for the three-month period ended September 30, 2020. The realized gain for the three-month period ended September 30, 2021 comprised $1,018,880 in gains from the buyouts of royalty investments and 3,818,891 from the sale of equity holdings.

Non-cash items included in revenue under IFRS, had a net impact of $(6,225,053) in the three- month period ended September 30, 2021, compared to $1,892,641 for the three-month period ended September 30, 2020. The non-cash amount of $(6,137,559) comprised $(6,282,460) in adjustments to fair value and $144,901 of foreign exchange movements.

Total revenue for the nine-month period ended September 30, 2021 was $7,083,979, a 4.7% increase from $6,767,079 for the nine-month period ended September 30, 2020. Royalty and loan payment income for the nine-month period ended September 30, 2021 was $4,485,123 representing a 16.9% increase from the $3,837,054 earned in the nine-month period ended September 30, 2020.

Of the $4,485,123 royalty and loan payment income earned during the nine-month period ended September 30, 2021, $1,303,503 was contributed by interest from new loan investments acquired in the last twelve months, $3,007,067 was from royalty payment income due to growth in revenues of investees and investees resuming to pay a royalty and $126,091 in income from loan amortization.

Realized gain from sale of investments was $9,194,067 for the nine-month period ended September 30, 2021 compared to a realized gain of $475,970 for the nine-month period ended September 30, 2020. The realized gain of $9,194,067 for the nine-month period ended September 30, 2021 comprised $4,856,508 in gains from buyouts of royalty investments and $4,337,559 in from net gains on the sale of equity holdings.

Non-cash items included in revenue under IFRS, had a net impact of $(6,634,568) in the nine- month period ended September 30, 2021, compared to $2,090,272 for the nine-month period ended September 30, 2020. The non-cash amount of $(6,634,568) was made up of $(6,416,345) for adjustments to fair value and $(218,223) in foreign exchange movements.

Operating Expense

Total operating expenses were $669,454 and $ 2,151,753 for the three and nine-month period ended September 30, 2021 compared to were $520,214 and $2,827,073 for the three-month and nine-month period ended September 30, 2020. The reduction in the YTD operating expenses is on account of changes in staffing and significantly lower restructuring costs and legal expenses compared to the corresponding period in the previous year.

Profit (Loss) After Taxes

Profit (loss) after taxes was $(1,040,382) and $3,333,467 for the three-month and nine-month period ended September 30, 2021 compared to $1,845,528 and $1,503,888 for the three-month and nine-month period ended September 30, 2020. The decline in the profit (loss) after taxes of $2,885,910 for the three-month period ended September 30, 2021, was primarily on account of lower revenue royalty and loan payment income, fair value movements on account of royalty buyouts and sale of investments, partly offset by lower operating costs, compared to the corresponding period in the previous year. The increase in profitability of $1,829,579 over the nine-month period ended September 30, 2021 was driven by a growth in revenue royalty and loan payment income, realized gains from royalty buyouts and sale of investments, and lower operating costs, compared to the corresponding period in the previous year.

Adjusted EBITDA(1)

Adjusted EBITDA(1) was $5,423,491 and $11,542,877 for the three-month and nine-month period ended September 30, 2021 compared to $1,520,157 and $2,356,004 for the three-month and nine-month period ended September 30, 2020. The year-over-year increases of $3,903,334 and $9,186,873 in Adjusted EBITDA(1) for the three and nine-month period was primarily on account of the realized gains from the sale of investments, higher royalty and loan interest income, lower operating costs, and movements in non-cash items including fair value adjustments and foreign exchange.

Free Cash Flow(1)

Free Cash Flow(1) was $4,451,016 and $9,365,620 for the three and nine-month period ended September 30, 2021 compared to $1,046,986 and $1,012,378 for the three-month and nine- month period ended September 30, 2020. The increase is primarily attributed to proceeds from exits from royalty investments and sales of equity holdings, higher royalty and loan interest income and lower operating costs. The increase in Free Cash Flow was offset by an increase in the income tax expense in the US subsidiary.

(1) Adjusted EBITDA, and Free Cash Flow are non-IFRS measures. Refer to section of Non-IFRS Measures in the MD&A for further explanation and definitions.

Shares Outstanding

As at September 30, 2021, Flow Capital had 31,240,077 share outstanding. Between January 1, 2021 and September 30, 2021, 915,000 common shares were repurchased at a weighted- average price per share of $0.4280.

Conference Call Details

Flow Capital will host a conference call to discuss these results at 9:00 a.m. Eastern Time, on Friday, November 12, 2021. Participants should call +1 (778) 560-2703 or +1 (833) 968-1926 and ask an operator for the Flow Capital 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 +1 (416) 621-4642 or +1 (800) 585-8367 and enter access code 4094726. The replay recording will be available until 11:59 p.m. Eastern Time, November 19, 2021.

An audio recording of the conference call will be also available on the investors’ page of Flow Capital’s website at www.flowcap.com/financials.

About Flow Capital

Flow Capital Corp. is a diversified alternative asset investor and advisor, specializing in providing minimally dilutive capital to emerging growth businesses. To apply for financing, visit www.flowcap.com.

For further information, please contact 

Flow Capital Corp.

Alex Baluta

Chief Executive Officer

Tel: (416) 777-0383

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 in the joint management information circular of the Company dated May 2, 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.