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CALGARY, AB, Oct. 5, 2020 /CNW/ - Alaris Equity Partners
Income Trust (the "Trust" or "Alaris") (TSX: AD.UN)
is pleased to provide an operational update, including an estimate
for Q3 revenue which is expected to beat Q2 revenue by over 16% and
previous guidance for the quarter by approximately 3%.
Financial Update:
- Q3 revenue is estimated to be $23.5
million up $3.3 million from
Q2 revenue of $20.2 million.
- The increase in Q3 revenue vs Q2 is a result of Body Contour
Centers LLC ("BCC") paying US$1.7
million of distributions in the quarter vs NIL in Q2 2020 as
well as the collection of US$0.9
million of distributions from Kimco Holdings, LLC, operating
as Kimco Facility Services ("Kimco") in the quarter. Revenue
was negatively impacted by a lower Canadian dollar in Q3 vs Q2 but
more than offset by the positive developments in our underlying
portfolio.
- Despite a difficult and uncertain economic environment, the
strong demand for services/products that our Partners (as defined
below) provide has resulted in better than previously expected
financial performance for 2020 and a positive revision to certain
Partners expected performance metric resets for 2021. As a
result, Alaris believes organic revenue will be flat year over year
when performance metrics are reset January
1, 2021.
- Alaris currently has available on its $330 million senior credit facility (the
"Facility") approximately $192
million for investment purposes (including the $50 million accordion), with a total senior debt
to EBITDA on a proforma basis of 1.8x.
- The Trust expects to close on a 2-year extension to the
Facility (extended to November 2023)
by mid October on similar terms.
- Prior to the trust conversion, Alaris Royalty Corp. had
purchased for cancellation 1,156,541 of its common shares at an
average price of $8.69 per common
share through its Normal Course Issuer Bid ("NCIB").
Following the trust conversion, the NCIB continues to be in place
for the Trust and Alaris will continue to consider/evaluate
opportunities to purchase trust units under the plan.
- Alaris is estimating its Run Rate Payout Ratio to be less than
80%, which is expected to result in an estimated $12 million of excess cash flow over the next 12
months. This is without counting on any revenue from PF Growth
Partners LP ("PFGP") in that time period. The Run Rate
Payout Ratio will improve with capital deployment and as
distributions from PFGP come back on line. Distributions from PFGP
would reduce our Run Rate Payout Ratio by approximately 12% when
full distributions are being paid.
"Our portfolio continues to surprise on the upside due to strong
management teams, low debt and the focus on required
products/services. Seeing flat year over year aggregate
performance while the broad economy has taken the biggest short
term hit in history is an incredible achievement by our partners,"
said Steve King, President and CEO,
Alaris. King continues, "While we were likely too aggressive
on cuts to our book value and dividend in May, that leaves ample
room for growth in the future. The current environment is also
proving to be very robust for capital deployment opportunities both
with our current high performing partners as well as with new
partners who have proven their abilities to succeed during these
volatile times."
Partner Update
Kimco
- Kimco continues to see increased revenue from additional
cleaning and sanitization work with their existing customers and
through ancillary cleaning services for new customers as a result
of the heightened demand for sanitization.
- EBITDA for the eight months ending August 31, 2020 is up substantially vs the entire
12 months ending December 31,
2019.
- Distributions restarted at US$100,000 per month in July and August and have
since increased to US$200,000 per
month in September.
- Alaris and Kimco also agreed to a cash flow sweep to accelerate
repayment of outstanding distributions. Alaris will receive an
additional payment of US$500,000
applied to Q3 and is expecting to receive a further US$500,000 in Q4 bringing total Q3 payments to
US$900,000 and Q4 expected payments
to US$1.1 million up from NIL in Q2
2020 and prior quarters.
- The coronavirus disease 2019 ("COVID") pandemic was a
growth catalyst for Kimco's operations. Kimco anticipates sales
growth to maintain current performance well in 2021 and potentially
beyond. This has been an impressive turnaround by Kimco and their
management team.
BCC:
- Alaris proactively deferred distributions for three months to
assist BCC with liquidity while all their locations were
temporarily closed between March and June. Upon reopening of all
clinics in June, results have been positive allowing BCC to pay
US$1.7 million of distributions in
Q3, which is the full amount owed for the quarter.
- Monthly financial and operational results since reopening have
exceeded their profitability and key performance indicators in the
same period in 2019. The company is expecting to finish the year
with EBITDA in excess of the prior year, even with a total loss of
almost all revenue for a full two months.
- As a result of the performance of the business and barring any
unforeseen changes, it is anticipated that all previously deferred
Q2 distributions will be paid within the next 6 months.
- Both the restart of full distributions and the anticipated
payment of the deferred distributions have been much sooner than
originally forecast.
PFGP:
- All 67 clubs are now open with the last 7 clubs opening in
August.
- Results since reopening continue to be strong. For the clubs
that have been opened for 3 full months, net new memberships are in
line with management forecasts. However, cancellations did increase
this summer due to COVID related factors such as mask requirements
in certain states. Signs of stabilization of cancellations are now
showing and Alaris continues to monitor results closely. New joins
for the last two months are up versus the prior year and user
engagement has increased for 4 straight months.
- The October billing period will provide a base to forecast the
next 12 months as this will include a full 3 months of billings
from all clubs and thus should provide a stabilized set of
data.
- Management of Alaris and PFGP will discuss how deferred
distributions will be caught up once regular distributions begin.
Alaris, PFGP and PFGP's lending syndicate will be negotiating a
longer-term amendment to the existing credit facility in Q4 2020.
Alaris is optimistic that the lending syndicate will allow for a
level of preferred distributions to be paid based on the current
performance of the business, but this will be subject to
negotiation.
- The resiliency of the businesses coming out of the initial
stages of the COVID lock down continues to highlight the strength
of the Planet Fitness ("PF") brand including the low price
point membership offering and superior member experience. With the
low operating costs of a PF gym, it is our view that the PF system
is weathering the COVID storm much better than most other operators
in the fitness industry. Thus, we feel PFGP is well positioned to
gain market share coming out of the COVID pandemic.
Federal Resources Supply Company ("FED"):
- Trailing twelve-month ("TTM") revenue and EBITDA are
both up by a large margin compared to full year 2019 metrics. The
company has significantly reduced debt over the last several months
due to the substantial increase of cash flow.
- FED continues to execute its traditional business plan as well
as opportunistically securing numerous key contracts to supply
personal protective equipment ("PPE") such as masks, medical
gowns and gloves under various government awarded contracts.
- The PPE order that Alaris was participating in has not yet
materialized due to constraints in the available supply of medical
grade nitrile gloves. FED still expects to execute this order,
however, Alaris' participation will not be required until FED
secures adequate supply and may not be needed at all, depending on
the size and structure of the new supply chain. Alaris has received
US$5 million of the US$11.5 million deposit Alaris initially paid
with the remaining amounts expected in October 2020. Alaris did not provide any
additional funding outside of the aforementioned deposit.
DNT Construction LLC ("DNT"):
- DNT has continued to perform well throughout the pandemic,
initial project delays have subsided and DNT's backlog is now flat
year over year.
- DNT revenue and EBITDA are trailing the comparable period
slightly. However, their liquidity and net working capital continue
to be robust. DNT and Alaris do not expect any interruptions in
distributions. This is a positive revision from the onset of the
pandemic as the Trust expected some flexibility in distributions
would be required to assist with working capital requirements.
LMS Reinforcing Steel Group LP ("LMS"):
- Year to date results are substantially ahead of the prior year
and the company currently has a robust project backlog.
- Alaris is expecting a double digit increase to the annual
distribution for 2021 based on LMS' financial performance thus far
in 2020.
General Update for Remaining Partners:
- For the other eleven Partners, there are no significant updates
to provide. Each continues to operate at or above expectations
since the guidance provided in Alaris' Q2 2020 earnings release
this past July.
- As previously disclosed, ccComm and Providence are the only Partners from this
group not paying distributions. Given the strong results from other
Partners included in this section, there are no expectations of any
others needing to defer distributions.
ABOUT ALARIS:
Alaris provides alternative financing to private companies
("Partners") in exchange for distributions with the
principal objective of generating stable and predictable cash flows
for dividend payments to its shareholders. Distributions from
the Partners are adjusted each year based on the percentage change
of a "top line" financial performance measure such as gross margin
and same-store sales and rank in priority to the owners' common
equity position.
NON-IFRS MEASURES:
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 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).
The term Run Rate Payout Ratio (the "Non-IFRS Measure") is not a
standard measure under IFRS. Alaris' calculation of the
Non-IFRS Measure may differ from those of other issuers and,
therefore, should only be used in conjunction with the Trust's
annual audited financial statements, which are available under the
Trust's profile on SEDAR at www.sedar.com.
FORWARD LOOKING STATEMENTS
This news release contains forward-looking statements,
including forward-looking statements within the meaning of "safe
harbor" provisions under applicable securities laws
("forward-looking statements"). Statements other than statements of
historical fact contained in this news release may be
forward-looking statements, including, without limitation,
management's expectations, intentions and beliefs concerning: the
financial and operational performance of the Partners for the
remainder of 2020 and beyond; expected resets on distributions from
the Partners for 2021 (individually and in the aggregate); use of
proceeds from the Facility; the extension of the Facility
(including the timing and terms thereof); Alaris' Run Rate Payout
Ratio; restarting or increasing distributions from Partners that
are not paying Alaris (partially or in full); the collection of
deferred distributions from Partners; expectations regarding future
deferrals of distributions for Partners; Kimco's ability to sustain
its current growth and operational improvements; amendments to
PFGP's senior credit facility; PFGP's ability to increase market
share; FED's continued growth and execution on specific PPE orders;
Alaris' use of the NCIB; the impact of the ongoing COVID pandemic
on the operations of Alaris and our Partners or any of them. Many
of these statements can be identified by words such as "believe",
"expects", "will", "intends", "projects", "anticipates",
"estimates", "continues" or similar words or the negative thereof.
Any forward-looking statements herein which constitute a financial
outlook or future-oriented financial information (including the
impact on revenues, Run Rate Payout Ratio, dividends and
interruptions to Partners' businesses,) were approved by management
as of the date hereof and have been included to provide an
understanding of 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 the COVID pandemic) 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 pandemic 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 will recover
from the pandemic's impact and return to their current operating
environments; following a recovery from the COVID 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 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.
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: how
many Partners will continue to be impacted by the ongoing COVID
pandemic and the extent of such impact; the ability of our Partners
and, correspondingly, Alaris to meet performance expectations for
2020 and beyond as a result of COVID or otherwise; any change in
Alaris' senior lenders outlook for the Trust; a failure to complete
the extension of the Facility in line with expected terms or at
all; management's ability to assess and mitigate the impacts of the
COVID pandemic; the dependence of Alaris on the Partners; reliance
on key personnel; general economic conditions, including the
ongoing impact of the COVID pandemic 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 of the Trust or any Partners to obtain required regulatory
approvals on a timely basis or at all; changes in legislation and
regulations and the interpretations thereof; a failure to achieve
expected benefits of the trust conversion; 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 in a timely fashion, or at all; a change in the
ability of the Partners to continue to pay Alaris' distributions; a
change in the unaudited information provided to the Trust; a
failure of a Partner (or Partners) to realize on their
anticipated growth strategies; a failure to achieve resolutions for
outstanding issues with Partners on terms materially in line with
management's expectations or at all; 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 the
Trust's Management Discussion and Analysis for the year ended
December 31, 2019, which is filed
under the Trust's profile at www.sedar.com and on its website at
www.alarisroyalty.com.
Accordingly, readers are cautioned not to place undue
reliance on any forward-looking information contained in this news
release as a number of factors could cause actual future results,
conditions, actions or events to differ materially from the
targets, expectations, estimates or intentions expressed in the
forward-looking statements. 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 assumptions
reflected in the forward-looking statements contained herein are
reasonable, there can be no assurance that such expectations will
prove to be correct.
The forward-looking statements contained herein are expressly
qualified in their entirety by this cautionary statement. The
forward-looking statements included in this news release are made
as of the date of this news release and Alaris does not undertake
or assume any obligation to update or revise such statements to
reflect new events or circumstances except as expressly required by
applicable securities legislation.
Neither the TSX nor its Regulation Services Provider (as
that term is defined in the policies of the TSX) accepts
responsibility for the adequacy or accuracy of this
release.
SOURCE Alaris Equity Partners Income Trust