Canadian Business Journal: Founders Advantage Capital

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Founders Advantage Capital Corp. Announces Quarterly Results

CALGARY, ALBERTA–(Marketwired – Nov. 10, 2016) – Founders Advantage Capital Corp. (TSX VENTURE:FCF) (the “Corporation”) is pleased to report its financial results for the quarter ended September 30, 2016 (“Q4 2016”). The comparative period is the quarter ended September 30, 2015 (“Q4 2015”). Note that during Q4 2016, the Corporation changed its year end from September 30 to December 31. As a result, the Corporation has a one-time, fifteen-month transition year, covering the months of October 2015 to December 2016. All results are presented in Canadian dollars. Readers should refer to the three and twelve months ended September 30, 2016 management discussion and analysis and condensed interim consolidated financial statements for complete information, which are available on SEDAR at www.sedar.com and on the Corporation’s website at www.advantagecapital.ca.

Selected highlights

Three months ended September 30, Twelve months ended September 30,
2016 2015 2016 2015
Revenue $ 10,642,963 $ $ 13,660,734 $
Earnings (loss) from operations $ 699,024 $ (847,901) $ (4,733,540) $ (3,281,749)
EBITDA (1) $ 1,868,756 $ (638,330) $ (4,491,716) $ 35,225,336
Normalized EBITDA(1) $ 5,899,559 $ (242,734) $ 4,972,975 $ (1,238,573)
Net (loss) income attributable to shareholders $ (2,842,354) $ (149,886) $ (7,383,992) $ 35,709,351

Notes:

  1. See “Non-IFRS measures” below for the definition of EBITDA and Normalized EBITDA and cautions related thereto.

Three months ended September 30, 2016 Financial Highlights

  • The Corporation completed a $33.3 million common share offering and finalized a $22.0 million senior debt facility in July 2016. The senior debt facility was used to repay the $20 million bridge facility which the Corporation used to fund a portion of the purchase price in acquiring a 60% ownership interest in Dominion Lender Centers (“DLC”).
  • Revenues were $10.6 million, compared to nil during Q4 2015, as a result of the acquisition of DLC on June 3, 2016.
  • Earnings from operations were $0.7 million, compared to a loss from operations of $0.8 million during Q4 2015. This increase over the prior year is significantly due to the acquisition of DLC, which is generating revenues from operations. This increase was partially offset by higher general and administrative expenses of $3.5 million, compared to $0.5 million during Q4 2015, the result of higher salaries, professional fees and travel costs. Further, share-based payments increased to $3.2 million, compared to $0.4 million during Q4 2015, due to the Corporation having granted additional share options during the current quarter, compared to the prior year quarter.
  • Net loss was $1.2 million, compared to a net loss of $0.2 million during Q4 2015. The current quarter net loss is the result of the recognition of a full quarter of DLC’s financial results, offset by higher head office costs related to a number of items including, salaries, acquisition costs, amortization of intangible assets, finance expense on loans and borrowings and the issuance of share options.

DLC Highlights

For the three months ended September 30, 2016, the Corporation would like to highlight the following financial highlights relating to DLC:

  • DLC’s revenue increased by 34% to $10.6 million when compared to the same prior year period ($7.9 million).
  • DLC’s expenses increased by 55% to $2.6 million when compared to the same prior year period ($1.7 million), primarily as a result of the growth in the business due to DLC’s acquisition of MA Mortgage Architects Inc. effective December 31, 2015.
  • DLC’s EBITDA increased by 56% to $6.7 million when compared to the same prior year period ($4.4 million). See “Non-IFRS measures” below for the definition of EBITDA and cautions related thereto.
  • DLC’s business tracks the seasonality of home purchases in Canada. Based on the seasonality of DLC’s operations, readers are cautioned not to weight quarterly financial data equally for all quarters. In addition, we note that DLC earns mortgage volume bonuses from lenders in the latter quarters of each year as mortgage volume targets are achieved.

Non-IFRS measures

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Normalized EBITDA is defined as EBITDA before non-cash items such as share-based payments and losses recognized on the sale of investments, and any unusual non-operating one-time items such as corporate start-up costs and acquisition and due diligence costs. Readers are cautioned that EBITDA and Normalized EBITDA should not be construed as a substitute or an alternative to applicable generally accepted accounting principle measures as determined in accordance with IFRS.

About Founders Advantage Capital Corp.

The Corporation is listed on the TSX Venture Exchange as an Investment Issuer (Tier 1) and employs a permanent investment approach. The Corporation has developed an investment approach to create long-term value for its shareholders and partner entrepreneurs (investees) by pursuing majority interest acquisitions of cash flow positive middle-market privately held entities. The Corporation seeks to win mandates by appealing to the segment of the market which is not aligned with traditional private equity control, royalty monetizations or related structures. The Corporation’s innovative platform offers disproportionate incentives (contractually) for growth in favour of our partner entrepreneurs. This unique platform is designed to appeal to entrepreneurs who believe in the growth of their businesses and who want the added ability to continue managing the business while partnering with a long-term partner.

The Corporation’s common shares are listed on the TSX Venture Exchange under the symbol “FCF”.

For further information, please refer to the Corporation’s website at www.advantagecapital.ca.

NEITHER THE 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.

Founders Advantage Capital Corp. Announces Dividend Policy

CALGARY, ALBERTA–(Marketwired – Nov. 4, 2016) – Founders Advantage Capital Corp. (TSX VENTURE:FCF) (the “Corporation” or “FA Capital”) is pleased to announce that as part of the Corporation’s long-term strategy to maximize shareholder value, the Board of Directors has approved the implementation of a new dividend policy:

  • In 2017, the Company will pay an annual dividend of $0.05 per common share (payable quarterly); and
  • In subsequent years, the quarterly dividend will be linked to distributable free cash received from investee entities, whereby the Company intends to pay up to 80% of the free cash flow it receives.

The first quarterly dividend ($0.0125 per common share) is expected to be declared in mid-March, 2017 to shareholders of record as at March 31, 2017.

Stephen Reid, President and CEO of FA Capital, commented: “With the announcement of our second intended acquisition this week, we believe that implementing a dividend policy is an important progression of our business. Although we consider ourselves a growth company, providing a dividend to our shareholders has always been one of our fundamental objectives. While we intend on reinvesting most of our distributable free cash into new acquisitions in 2017, we also want to commence providing some yield to shareholders.”

About Founders Advantage Capital Corp.

The Corporation is listed on the TSX Venture Exchange as an Investment Issuer (Tier 1) and employs a long-term investment approach. The Corporation has developed an investment approach to create long-term value for its shareholders and partner entrepreneurs (investees) by pursuing controlling interest acquisitions of cash flow positive, premium middle-market privately-held entities. The Corporation seeks to win mandates by appealing to the segment of the market which is not aligned with traditional private equity control, royalty monetizations or related structures. The Corporation’s innovative platform offers disproportionate incentives (contractually) for growth in favour of our partner entrepreneurs. This unique platform is designed to appeal to entrepreneurs who believe in the growth of their businesses and who want the added ability to continue to manage the business with a long-term partner.

The Corporation’s common shares are listed on the TSX Venture Exchange under the symbol “FCF”.

For further information please refer to the Corporation’s website at www.advantagecapital.ca.

NEITHER THE 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.

Cautionary Statement Regarding Forward-Looking Information

Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “estimate”, “will”, “expect”, “plan”, “schedule”, “intend”, “propose”, or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to:

  • the dividend amount per share to be declared quarterly in 2017;
  • the dividend amount per share to be declared quarterly subsequent to 2017;
  • the percentage of distributable free cash flow to be paid to shareholders;
  • the first quarterly dividend will be declared in March, 2017; and
  • the intended reinvestment of distributable free cash into new acquisitions in 2017.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:

  • that the Corporation will have sufficient cash available to pay a dividend in 2017 or in subsequent years as contemplated herein;
  • that the Corporation will receive distributable free cash flow from its investee entities;
  • that the Corporation will not need to change its dividend policy to fund other corporate initiatives;
  • that the Corporation will complete additional acquisitions in 2017.

Although the Corporation believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as the Corporation can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Corporation and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:

  • the failure of the Corporation to generate distributable free cash from its investee entities;
  • the ability of the Corporation to execute on its business plan as previously disclosed;
  • the risks and uncertainties applicable to the operations of the Corporation and its investee entities.

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled “Risk Factors” in the Corporation’s current annual information form. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities law, the Corporation undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

Founders Advantage Capital Corp. Announces Letter of Intent to Acquire a 60% Interest in CLUB16 Trevor Linden Fitness and She’s FIT! Health Clubs

CALGARY, ALBERTA–(Marketwired – Nov. 2, 2016) – Founders Advantage Capital Corp. (TSX VENTURE:FCF) (the “Corporation” or “FA Capital”) is pleased to announce that it has entered into a letter of intent to acquire a 60% majority interest (the “Transaction”) in a limited partnership (“CLUB16 LP”) holding eight (8) Club 16 Trevor Linden Fitness Clubs (“CLUB16”) and five (5) She’s FIT! Health Clubs (“She’s FIT!”) in the Vancouver and Lower Mainland area for a total cash purchase price of $20 million (subject to certain closing adjustments) which, after adjusting for debt, represents a multiple of 6.5x EBITDA for the year ended June 30, 2016. The thirteen (13) fitness locations are collectively referred to herein as the “Fitness Clubs”. After completion of the Transaction, the current owners of the Fitness Clubs, comprised of Trevor Linden, Chuck Lawson and Carl Ulmer and certain other minority shareholders (the “Founders”) will retain a 40% interest in CLUB16 LP and will continue to manage the day-to-day operations. Completion of the Transaction is subject to a number of conditions and is expected to close prior to or concurrent with the Corporation’s year end (December 31, 2016). The $20 million purchase price for the Transaction will be funded by the Corporation with available cash and available borrowings under existing credit facilities.

The thirteen (13) Fitness Clubs have over 78,800 memberships and appeal to a large segment of the Vancouver fitness centre market with value pricing, high quality experience, and both ladies only and co-ed facilities.

The Transaction has been structured to provide the Corporation with 60% of annual distributions up to approximately $5.6 million (the “Annual Threshold”) paid by CLUB16 LP to its securityholders, with the Founders receiving 40% of annual distributions up to such Annual Threshold (the Annual Threshold being subject to adjustment on closing). The final Annual Threshold will be determined based on 95% of the trailing twelve (12) month EBITDA for the Fitness Clubs based on current information available to the parties. All cash distributions by CLUB16 LP to its securityholders will be subject to Board approval of the general partner and may be adjusted from time to time to pursue expansion or capital initiatives or other corporate purposes. To the extent that any distributions are paid in a year in excess of the Annual Threshold, the Founders will receive 70% of such excess distributions, with the Corporation receiving the remaining 30% of such excess distributions. In addition, with respect to any liquidity event, the net proceeds of disposition will be allocated amongst the Corporation and the Founders based upon their security holdings and adjusted for certain growth in cash distributions received as at the date of the liquidity event.

Prior to completion of the Transaction, the Fitness Clubs will be rolled into CLUB16 LP, whereby the income from CLUB16 LP will be distributed and subsequently taxed at the limited partnership unitholder level. The Corporation anticipates deducting its corporate expenses against the income received from CLUB16 LP in determining its annual tax liability (if any).

Following closing of the Transaction, the business of CLUB16 LP will be overseen by a corporate general partner having a combined Board consisting of Chuck Lawson and two nominees of the Corporation, initially Stephen Reid and Gary Mauris. The Transaction will not be a “significant acquisition” for the Corporation as defined by applicable securities laws.

In the event the Transaction is completed, the Corporation will have two (2) investee entities in its investment portfolio, Dominion Lending Centres (“DLC”) and CLUB16 LP. As previously reported, the board of directors of the general partner of DLC resolved to make monthly cash distributions to unitholders of $900,000 in the aggregate (of which 60% or $540,000 per month is anticipated to be paid to the Corporation). The Corporation anticipates receiving additional monthly or quarterly cash distributions from CLUB16 LP and does not anticipate any material increase in general and administrative expenses associated with the investment in CLUB16 LP.

Stephen Reid, Chief Executive Officer of the Corporation, commented: “We are excited to join the CLUB16 & She’s FIT! team in offering quality fitness centres at affordable prices and promoting health and wellness in the Vancouver area. The Trevor Linden brand represents trust, loyalty, quality and integrity; characteristics which are also fundamental to the Corporation’s brand. We believe in the ability of the Founders to grow CLUB16 LP through both increased memberships at existing Fitness Clubs and through adding new locations.”

Chuck Lawson, co-founder of CLUB16 and founder of She’s FIT!, commented: “We are pleased to be partnering with FA Capital. CLUB16’s brand has a proven track record of delivering high quality facilities at an affordable price to a large segment of the population. We have a significant opportunity to expand our presence in British Columbia and partnering with FA Capital will help drive this expansion plan forward. This transaction will allow us to offer our value-priced clubs to more consumers and create new opportunities for our employees.”

Trevor Linden, former NHL hockey player and co-founder of CLUB16, commented: “I am excited about the opportunity to take the CLUB16 Trevor Linden Fitness brand to the next level. Partnering with FA Capital will allow us to take our personal fitness offering to an even larger segment of the BC population.”

The Corporation is pleased to report that its unique investment strategy to acquire controlling interests in premium privately-owned companies with positive cash flow, and sharing a disproportionate share of growth with the founders, continues to be well received by both founders and their advisors. The Corporation’s management team continues to market the Corporation’s investment strategy across North America and receives numerous inbound proposals from founders and their advisors each week. The Corporation continues to have a robust pipeline of potential transactions that it continues to review and assess.

KPMG Corporate Finance is acting as lead financial advisor to the CLUB16 shareholders.

About CLUB16 Trevor Linden Fitness

CLUB16 and She’s FIT! believes it is revolutionary in the fitness industry. The biggest barrier to joining a health club used to be high membership fees, fixed contracts and the perception that you must be fit to go to a health club. Removing these barriers with “no contract memberships”, “affordable start up fees” and “value priced dues” as well as monitoring our health clubs for negative issues that make the average person uncomfortable in the fitness/health club environment, allows our health clubs to be more accessible and affordable to everyone. In pursuing our business model, management feels CLUB16 and She’s FIT! can play a large part in helping more people improve their health and their lives.

Chuck Lawson is the founder of She’s FIT! and the co-founder and President & CEO of CLUB16. Chuck has over 30 years of experience operating health clubs in the fitness industry and has been instrumental in bringing a high-quality fitness product at a more affordable price. Chuck is also the Area Representative and President & CEO of the Orangetheory Fitness Centres in the Greater Vancouver & Fraser Valley Area of British Columbia.

Trevor Linden, OBC, CM, is the co-founder of CLUB16. A professional hockey player from Medicine Hat, Alberta, Trevor Linden is one of Canada’s most respected athletes. He was drafted by the Vancouver Canucks in 1988 who, in recognition of his leadership, named him as captain in 1990. During his playing career, Trevor was the Canucks team representative to the National Hockey League Players’ Association (NHLPA) and was elected President of the NHLPA in 1998. The Canucks retired the number 16 jersey in 2008 following Trevor’s retirement after 20 years in the NHL. Trevor has since returned to hockey as the Vancouver Canucks’ President of Hockey Operations & Alternate Governor, NHL.

Carl Ulmer currently serves as Managing Partner for the Fitness Clubs and will be continuing in this role with CLUB16 LP. Carl has been an integral member of CLUB16’s operational team having worked at various levels of the organization over the last six years.

About Founders Advantage Capital Corp.

The Corporation is listed on the TSX Venture Exchange as an Investment Issuer (Tier 1) and employs a long-term investment approach. The Corporation has developed an investment approach to create long-term value for its shareholders and partner entrepreneurs (investees) by pursuing controlling interest acquisitions of cash flow positive, premium middle-market privately-held entities. The Corporation seeks to win mandates by appealing to the segment of the market which is not aligned with traditional private equity control, royalty monetizations or related structures. The Corporation’s innovative platform offers disproportionate incentives (contractually) for growth in favour of our partner entrepreneurs. This unique platform is designed to appeal to entrepreneurs who believe in the growth of their businesses and who want the added ability to continue to manage the business with a long-term partner.

The Corporation’s common shares are listed on the TSX Venture Exchange under the symbol “FCF”.

For further information please refer to the Corporation’s website at www.advantagecapital.ca.

NEITHER THE 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.

Cautionary Statement Regarding Forward-Looking Information

Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “estimate”, “will”, “expect”, “plan”, “schedule”, “intend”, “propose”, or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to:

  • completion of the Transaction on the terms set out herein;
  • timing of closing of the Transaction;
  • reorganization of the Fitness Clubs into a limited partnership;
  • the anticipated EBITDA for Club 16 LP;
  • the deduction of corporate expenses by the Corporation against the income received from Club 16 LP;
  • the return on investment for the Corporation in the event the Annual Threshold is achieved; and
  • the receipt of monthly cash distributions of $540,000 from DLC and the receipt of additional monthly or quarterly distributions from Club 16 LP subsequent to the closing of the Transaction.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:

  • that the future performance of the Fitness Clubs will be consistent with past performance;
  • that all closing conditions will be satisfied or waived; and
  • that the parties will be able to successfully negotiate the definite agreements.

Although the Corporation believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as the Corporation can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Corporation and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:

  • the failure to obtain necessary approvals and consents to complete the Transaction;
  • the satisfaction or waiver of all closing conditions;
  • the Transaction will not yield the anticipated benefits to the Corporation;
  • the risks and uncertainties applicable to the operation of fitness centres generally; and
  • the risks and uncertainties applicable to DLC’s operations.

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled “Risk Factors” in the Corporation’s current annual information form. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities law, the Corporation undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

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