AD.UN Alaris Equity Partners Income Trust

/NOT FOR DISTRIBUTION IN THE UNITED STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW./

TSX-AD.UN

CALGARY, AB, Nov. 5, 2020 /CNW/ - Alaris Equity Partners Income Trust. ("Alaris" or the "Trust") is pleased to announce its results for the three and nine months ended September 30, 2020. The results are prepared under International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). All amounts below are in Canadian dollars unless otherwise noted.

Q3 2020 Highlights:

• Generated revenue of $23.4 million in the quarter and $77.6 million for the nine months ended September 30, 2020, along with Normalized EBITDA of $20.1 million and $58.7 million in each period, respectively. Compared to Q2 2020, revenue increased 16% on a per unit basis and Normalized EBITDA increased 19% per unit, as a result of:
• • Body Contour Centers ("BCC") restarting distributions after deferring during Q2 2020 while all their clinics were temporarily closed due to COVID-19. They have continued to see positive results from all key performance indicators and in addition to restarting distributions they intend to repay the US$1.7 million of deferred distributions from Q2 within the next six months.
  • Kimco Holdings, LLC ("Kimco") restarting distributions during Q3 2020 due to their notable financial results and positive outlook. Kimco's ability to execute on new COVID-19 specific cleaning solutions to meet increased demand in addition to winning a number of new clients, has resulted in Alaris receiving US$0.9 million of distributions in Q3 2020 and expected distributions of US$1.1 million in the fourth quarter.
  • Full quarter of distributions from the Trust's initial investment into Carey Electric Contracting, LLC ("Carey Electric"), which was completed in June 2020;
• Increases to the fair value of Alaris' investments totalled $11.9 million for the quarter, which includes: $9.8 million for Kimco as a result of their improved results and an increase in expectations for future distributions from Alaris' previous quarterly results, $1.2 million for Fleet Advantage, LLC ("Fleet") and $0.9 million for Unify Consulting, LLC ("Unify"), as both companies have shown positive results year-to-date and are now projected for maximum positive resets in January 2021;
• The underlying financial performance of our portfolio continues to be resilient with nine Partners realizing increasing profitability year to date, one flat and seven declining. This demonstrates the required nature of services which our Partners provide. The weighted average combined Earnings Coverage Ratio ("ECR") has increased to 1.7x, compared to 1.5x before the impacts of COVID-19. The ECR points to the cash flow cushion that Alaris has in receiving all of the Run Rate Revenue.  Of note, roughly 18 months ago Alaris had 6 of 16 Partners with an ECR greater than 1.5x, 12 months ago there were 7 of 15 with an ECR of greater than 1.5x and today 12 of 17 Partners have an ECR greater than 1.5x; 
• On September 1, 2020, Alaris announced that it had completed the previously announced plan of arrangement ("the Arrangement") pursuant to which the Trust indirectly acquired all of the issued and outstanding common shares of Alaris Royalty Corp. (the "Corporation") in exchange for trust units. Following the Arrangement, the Trust is a materially simplified cross-border investment structure involving fewer foreign jurisdictions. The conversion should reduce compliance and other administrative costs and Alaris' exposure to changes in foreign laws, while it also increases the amount of cash available for distribution to unitholders. As part of the conversion to a trust, the Alaris' symbol on the TSX changed to "AD.UN" (previously was "AD");
• Subsequent to September 30, 2020, Alaris contributed an additional US$55.0 million (the "GWM Contribution") to GWM Holdings Inc. and a subsidiary thereof (collectively "GWM") in exchange for initial annualized distributions of US$6.6 million. The investment consists of US$44.0 million of subordinated debt and US$11.0 million of preferred equity. Due to the structure used for this GWM follow-on contribution, the after-tax yield is expected to be equivalent to that of a deal done at an initial pre-tax yield of approximately 13%;
• Following the GWM Contribution and the restart of distributions from BCC and Kimco, the Trust's Run Rate Payout Ratio is approximately 74% when including distributions, overhead expenses and current distributions to unitholders expected for the next twelve months. As calculated, the Run Rate Payout Ratio is expected to generate approximately $15.9 million in excess cash flow or $0.45 per unit;
• The Trust's subsidiary, Alaris Equity Partners Inc. ("AEP") finalized a two-year extension to its credit facility with its syndicate of senior lenders, with the maturity date now being in November 2023. All key terms and pricing remained consistent with the previous facility; and
• Up to the date of this release the Trust has repurchased for cancellation 1,156,541 of its trust units (or shares of AEP prior to the Arrangement) at an average price of $8.69 per unit through its Normal Course Issuer Bid ("NCIB"). The repurchases have resulted in a total annualized pre-tax savings of approximately $1.39 million or $0.04 per unit.

"Our second full quarter of operating during the COVID-19 pandemic has seen the operations and financial performance of most of our Partners adapting successfully to this unique environment" said Steve King, CEO. "Alaris' focus on required service businesses continues to prove itself during these difficult times. More of our partners have actually benefitted from the current environment compared to those that have been hurt. We are now at the lowest payout ratio in our history, putting us in a strong position for future growth" said King.

Revenue per unit decreased 19.5% during the three months ended September 30, 2020, compared to the prior year period, due to the continued deferral of distributions from PF Growth Partners, LLC ("PFGP") as a result of COVID-19, as well as due to the redemptions of Sales Benchmark Index LLC ("SBI") and Sandbox Acquisitions, LLC and Sandbox Advertising LP (collectively, "Sandbox") in Q1 2020. These were partially offset by additional revenue in the current period from new investments in Stride Consulting LLC ("Stride") and Carey Electric, revenue from a follow-on investment into Unify and the re-starting of distributions from Kimco. Revenue per unit decreased just 7.3% for the nine months ended September 30, 2020 since the current year period also includes a full nine months of revenue from  Amur Financial Group Inc. ("Amur") as well as additional distributions from SBI as part of their redemption.

For the three months ended September 30, 2020, Normalized EBITDA of $0.57 per unit ($20.1 million) was a decrease of 19.7% compared to $0.71 per unit ($25.9 million) in the prior year comparable period. For the nine months ended September 30, 2020, Normalized EBITDA of $1.63 per unit ($58.7 million) represented a 20.1% decrease from the prior year period which was $2.04 per unit ($74.8 million). The primary reason for the decrease in both periods was the deferral of six months of distributions from PFGP and of three months of distributions from BCC in Q2.

Net cash from operating activities for the three months ended September 30, 2020 of $0.28 per unit decreased by 49.1% from Q3 2019, which is a more significant decrease than expected due to the timing of US tax payments made. A portion of the payments made during Q3 2020 would have been made in Q2 in prior year periods, but during 2020 the US tax authorities extended the deadline to July 2020 from the second quarter, as a result of COVID-19. The net cash from operating activities for the nine months ended September 30, 2020 of $1.39 per unit is a decrease of 10.9% from the $1.56 per unit it was in the prior year comparable period, which is in line with expectations given there was a decline in revenue per unit.

Outlook

With improved visibility on our Run Rate Revenue from our Partners, Alaris is re-initiating guidance. Based on current distribution expectations from each Partner, total revenue is expected to be approximately $26.0 million in Q4 2020 and $103.6 million for the full fiscal year 2020. Run Rate Revenue is expected to be $103.9 million annually, which includes current contracted amounts, US$4.4 million from Kimco and no distributions from PFGP, ccComm or Providence. Alaris continues to defer distributions from PFGP and are in the process of discussing the amendments to the senior lending arrangement that would allow for the restart of distributions from PFGP. Distributions from PFGP will be included in the Run Rate Revenue once they have restarted.

Annual general and administrative expenses are currently estimated at $12.5 million and include all public company costs. The Trust's Run Rate Payout Ratio is approximately 74% when including run rate distributions, overhead expenses and the existing capital structure. The table below sets out our estimated Run Rate Payout Ratio alongside the after-tax impact of PFGP distributions.

The senior debt facility was drawn to $178.9 million at September 30, 2020, with the capacity to draw up to another $170.2 million based on covenants and credit terms. The total drawn of $178.9 million includes the $168.9 million of outstanding debt in the Trust's statement of financial position, as well as $10.0 million that was repaid during Q3 for the purpose to re-draw in October to make the quarterly distribution to unitholders. Subsequent to September 30, 2020, the Trust drew an additional US$55.0 million ($73.6 million) for the follow-on contribution to GWM which was partially offset by the repayment of $13.7 million through excess cash flow and receipt of the outstanding US$6.5 million deposit from FED (outstanding from the total US$11.5 million that was funded by a wholly-owned subsidiary of the Trust in July 2020 but was received subsequent to September 30, 2020). Therefore, the senior debt facility was drawn to $238.8 million as of the date of filing, with the capacity to draw up to another $126.8 million based on covenants and credit terms. The annual interest rate on the senior debt was approximately 5.5% for the nine months ended September 30, 2020.

The Consolidated Statement of Financial Position, Statement of Comprehensive Income, 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.alarisequitypartners.com.

Earnings Release Date and Conference Call Details

Alaris management will host a conference call at 9am MT (11am ET), Friday, November 6, 2020 to discuss the financial results for Q3 2020 and outlook for the Trust.

Participants can access the conference call by dialing toll free 1-888-390-0546.  Alternatively, to listen to this event online, please click the webcast link and follow the prompts given: Q3 Webcast.  Please connect to the call or log into the webcast at least 10 minutes prior to the beginning of the event.

For those unable to participate in the conference call at the scheduled time, it will be archived for instant replay for a week. You can access the replay by dialing toll free 1-888-390-0541 and entering the passcode 390365#.  The webcast will be archived and is available for replay by using the same link as above or by finding the link we'll have stored under the "Investor" section – "Presentation and Events", on our website at www.alarisequitypartners.com.  

An updated corporate presentation will be posted to the Trust's website within 24 hours at www.alarisequitypartners.com.

About the Trust:

Alaris, through its subsidiaries, provides alternative financing to private companies ("Partners") in exchange for distributions, dividends or interest (collectively, "Distributions") with the principal objective of generating stable and predictable cash flows for distribution payments to its unitholders.  Distributions from the Partners are adjusted annually based on the percentage change of a "top-line" financial performance measure such as gross margin or same store sales and rank in priority to the owner's common equity position.

Non-IFRS Measures

The terms EBITDA, Normalized EBITDA, Run Rate Payout Ratio, Actual Payout Ratio, Run Rate Revenue, Earnings Coverage Ratio, Per Unit and IRR are financial measures used in this news release that are not standard measures under International Financial Reporting Standards ("IFRS"). The Trust's method of calculating EBITDA, Normalized EBITDA, Run Rate Payout Ratio, Actual Payout Ratio, Run Rate Revenue, Earnings Coverage Ratio, Per Unit, IRR and Normalized Earnings may differ from the methods used by other issuers. Therefore, the Trust's EBITDA, Normalized EBITDA, Run Rate Payout Ratio, Actual Payout Ratio, Run Rate Revenue, Earnings Coverage Ratio, Per Unit and IRR may not be comparable to similar measures presented by other issuers.

Run Rate Payout Ratio refers to Alaris' total distribution per unit expected to be paid over the next twelve months divided by the estimated net cash from operating activities per unit that Alaris expects to generate over the same twelve month period (after giving effect to the impact of all information disclosed as of the date of this report).

Actual Payout Ratio refers to Alaris' total cash distributions paid during the period (annually or quarterly) divided by the actual net cash from operating activities Alaris generated for the period.

Run Rate Revenue refers to Alaris' total revenue expected to be generated over the next twelve months.

EBITDA refers to earnings determined in accordance with IFRS, 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 Trust's ability to generate cash available for debt service, working capital, capital expenditures, income taxes and distributions.

Normalized EBITDA refers to EBITDA excluding items that are non-recurring in nature and is calculated by adjusting for non-recurring expenses and gains to EBITDA. Management deems non-recurring items to be unusual and/or infrequent items that the Alaris incurs outside of its common day-to-day operations. For the nine months ended September 30, 2020, these include the distributions received upon redemption of SBI and in the three and nine months ended September 30, 2020 the non-recurring legal expenses related to the income trust conversion, the non-cash impact of trust completion and the unit-based compensation expense related to the quarterly re-valuation of the outstanding unit-based compensation. For the nine months ended September 30, 2019, these include a bad debt recovery related to Phoenix. Transaction diligence costs are recurring but are considered an investing activity. Foreign exchange realized and unrealized gains and losses are recurring but not considered part of operating results and excluded from normalized EBITDA on an ongoing basis. Changes in investments at fair value are non-cash and although recurring are also removed from normalized EBITDA. Adjusting for these non-recurring items allows management to assess cash flow from ongoing operations.

Earnings Coverage Ratio refers to the Normalized EBITDA of a Partner divided by such Partner's sum of debt servicing (interest and principal), unfunded capital expenditures and distributions to Alaris. Management believes the earnings coverage ratio is a useful metric in assessing our partners continued ability to make their contracted distributions.

Per Unit values, other than earnings per unit, refer to the related financial statement caption as defined under IFRS or related term as defined herein, divided by the weighted average basic units outstanding for the period.

IRR refers to internal rate of return, which is a metric used to determine the discount rate that derives a net present value of cash flows to zero. Management uses IRR to analyze partner returns.

Normalized Earnings refers to Earnings excluding non-recurring tax expenses related to newly enacted US Tax regulations that were applied retrospectively to January 1, 2019.

The terms EBITDA, Normalized EBITDA, Run Rate Payout Ratio, Actual Payout Ratio, Earnings Coverage Ratio, Per Unit and IRR should only be used in conjunction with the Trust's annual audited 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 information and forward-looking statements (collectively, "forward-looking statements") under applicable securities laws, including any applicable "safe harbor" provisions. 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 of the Trust and the Private Company Partners, the future financial position or results of the Trust, business strategy and plans and objectives of or involving the Trust or the Partners.  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 Partners; the impact of COVID-19 on the operations of the Trust and those of the Partners; the timing and impact of restarting or increasing Distributions from Partners not currently paying the full amount or at all; the Trust's Run Rate Payout Ratio and Run Rate Revenue; the continued deferral of PFGP's Distributions; the impact of the GWM Contribution, including, without limitation, the expected yield therefrom and the impact on the Trust's cashflow and Run Rate Payout Ratio; expected resets of Distributions in 2021; the Trust's consolidated expenses; the amount of the Trust's distributions to unitholders (both quarterly and on an annualized basis); the use of proceeds from AEP's senior credit facility; the Trust's ability to deploy capital and impact of new deployment. To the extent any forward-looking statements herein constitute a financial outlook, including estimates regarding revenues, distributions from Partners (including expected resets), expenses and impact of capital deployment, they were approved by management as of the date hereof and have been included to provide an understanding with respect to Alaris' financial performance and are subject to the same risks and assumptions disclosed herein. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur.

By their nature, forward-looking statements require Alaris to make assumptions and are subject to inherent risks and uncertainties.  Assumptions about the performance of the Canadian and U.S. economies over the next 24 months and how that will affect Alaris' business and that of its Partners (including, without limitation, the ongoing impact of COVID-19) are material factors considered by Alaris management when setting the outlook for Alaris.  Key assumptions include, but are not limited to, assumptions that: the Canadian and U.S. economies will begin to recover from the ongoing economic downturn created by the response to COVID-19 within the next twelve months, interest rates will not rise in a material way over the next 12 to 24 months, that those Alaris Partners detrimentally affected by COVID-19 will recover from the pandemic's impact and return to their current operating environments, following a recovery from the COVID-19 impact, the businesses of the majority of our Partners will continue to grow, more private companies will require access to alternative sources of capital and that Alaris will have the ability to raise required equity and/or debt financing on acceptable terms.  Management of Alaris has also assumed that the Canadian and U.S. dollar trading pair will remain in a range of approximately plus or minus 15% of the current rate over the next 6 months. In determining expectations for economic growth, management of Alaris primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies as well as prevailing economic conditions at the time of such determinations.

There can be no assurance that the assumptions, 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 Trust and the Partners 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 ongoing impact of the COVID-19 pandemic on the Trust and the Partners (including how many Partners will experience a slowdown or closure of their business and the length of time of such slowdown or closure); management's ability to assess and mitigate the impacts of COVID-19; the dependence of Alaris on the Partners; leverage and restrictive covenants under credit facilities; reliance on key personnel; general economic conditions, including the ongoing impact of COVID-19 on the Canadian, U.S. and global economies; failure to complete or realize the anticipated benefit of Alaris' financing arrangements with the Partners; a failure to obtain required regulatory approvals on a timely basis or at all; changes in legislation and regulations and the interpretations thereof; risks relating to the Partners and their businesses, including, without limitation, a material change in the operations of a Partner or the industries they operate in; inability to close additional Partner contributions or redeem proceeds from any redemptions in a timely fashion on anticipated terms, or at all; a change in the ability of the Partners to continue to pay Alaris at expected distribution levels or restart distributions (in full or in part); a failure to collect material deferred distributions; a change in the unaudited information provided to the Trust; and a failure to realize the benefits of any concessions or relief measures provided by Alaris to any Partner or to successfully execute an exit strategy for a Partner where desired. Additional risks that may cause actual results to vary from those indicated are discussed under the heading "Risk Factors" and "Forward Looking Statements" in Alaris' Management Discussion and Analysis for the year ended December 31, 2019, which is filed under Alaris' profile at www.sedar.com and on its website at www.alarisequitypartners.com. 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 Equity Partners Income Trust
Condensed consolidated statements of financial position (unaudited)

Alaris Equity Partners Income Trust
Condensed consolidated statements of comprehensive income / (loss) (unaudited)

Alaris Equity Partners Income Trust

Condensed consolidated statements of cash flows (unaudited)

SOURCE Alaris Equity Partners Income Trust